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CPI—inflation not under control

Sabrin Murray 2.26.18 04

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“There is a right way and a wrong way, always choose the right way.”  Abraham Sabrin (1914-2001). “Prediction is very difficult, especially if it’s about the future!”  Niels Bohr

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The CPI increased 0.1 percent in November and 3.1 percent from a year ago.  The energy index dropped 2.3 percent, fueled—no pun intended—by a 6.0 percent decline in gasoline prices.  Motorists got major relief at the gas pump.  Food prices increased 0.2 percent in November while food away from home jumped 0.4 percent. 

Overall, last month rent, owners’ equivalent rent, medical care, and motor vehicle insurance increased. Prices fell for apparel, household furnishings and operations, communication, and recreation among other goods and services.

If food and energy prices are omitted from the CPI, remaining prices rose 4.0 percent from a year ago.  In other words, making ends meet for most families is still a challenge. 

However, the Sticky Consumer Price Index Less Food and Energy rose 4.93 percent from a year ago. 

According to the St. Louis Fed, “The Sticky Price Consumer Price Index (CPI) is calculated from a subset of goods and services included in the CPI that change price relatively infrequently. Because these goods and services change price relatively infrequently, they are thought to incorporate expectations about future inflation to a greater degree than prices that change on a more frequent basis. One possible explanation for sticky prices could be the costs firms incur when changing price.” 

Thus, annual “core inflation” of nearly 5 percent is far from the than the Fed’s goal of 2 percent inflation. 

The implication is that the Fed will not lower interest rates any time soon because price inflation is still entrenched in the economy. Whether the Fed will raise interest rates Wednesday to help bring inflation in line with its 2 percent goal remains to be seen.

With the stock market on a tear since the end of October coupled with the substantial rise in housing prices the past few years, the so-called wealth effect has lifted the net worth of the American people.   

The last thing the Fed would like to see is Americans go on a spending spree, which would cause prices to increase more than current price inflation. 

As far as price inflation in 2024 and beyond we could see inflation “stabilize” at these levels and then jump during the last inflation cycle from the 1960s to the early 1980s.

The next few years could see a repeat of the “stop and go” inflation of decades ago.   

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https://fortune.com/2023/03/27/recession-2023-layoffs-tech-finance-unemployment-outlook-fed-rates-murray-sabrin/?utm_source=search&utm_medium=advanced_search&utm_campaign=search_link_clicks.  This is an update of my 2021 forecast, https://fortune.com/2021/12/09/next-recession-heres-everything-bubble-markets-2021-2022-covid-murray-sabrin/ 

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Murray Sabrin, PhD, is emeritus professor of finance, Ramapo College of New Jersey. Dr. Sabrin is considered a “public intellectual” for writing about the economy in scholarly and popular publications. His new book, The Finance of Health Care: Wellness and Innovative Approaches to Employee Medical Insurance (Business Expert Press, Oct. 24, 2022), and his other BEP publication, Navigating the Boom/Bust Cycle: An Entrepreneur’s Survival Guide (October 2021), provides decision makers with tools needed to help manage their businesses during the business cycle.  Sabrin’s autobiography, From Immigrant to Public Intellectual: An American Story, was published in November, 2022.

Murray’s Newsletter is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

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