Another Government Release on Inflation for October, 2021

For October, we've had the C-CPI-U, CPI-W, CPI-U, R-CPI-E, Median CPI-U, PPI Final, PPI Intermediate. Confused? Maybe that's the point!

Now it's time for the PCE, PCE sans Food and Energy, and Trimmed Mean PCE, to round out the inflation reports for October.

The Forecast... PCE 5.08% and the Core PCE at 4.09%.

The Result... PCE 5% and the Core PCE at 4.1%. Oh, and the Trimmed Mean PCE is at 2.6%.

The monthly PCE was forecast at 0.7% and the core at 0.44%. Result was 0.6% and 0.4% for Core.

What does any of this mean? Frankly, I am only concerned about My Price Index and the direction it might be headed, and right now that direction is upward. 

So naturally, I am interested in the FED decisions to raise interest rates to slow inflation. But which rate of inflation is being watched. I know everyone has their own belief and the FED is theoretically supposed to keep inflation near the 2% level. But again, which rate, is it core... or is it trimmed.

A bit of history about the 2% target. It is not set in stone. For most of the past decade the debate has been about raising that targeted rate. Google it, as there are many articles regarding this matter. 

To the matter at hand... the FED has adopted an average of 2% and to make up for past "low" inflation...

By adopting average inflation targeting, the Fed is communicating that 2 percent is not a ceiling for inflation and that it may let inflation exceed 2 percent modestly and temporarily to make up for past low inflation. The key aim of this policy shift is anchoring inflation expectations. 

Just how long is that timeline and which inflation method is being used?

I would say the FED is in between a rock and a hard place, but I think the more accurate description is as follows...

Image a silk table cloth on a table. Atop that table cloth a house of cards has been built. Now you must remove that silk table cloth... without bringing down that house of cards.

What does that mean? I still have an imagination at my ripe old age.

Other stats from this morning (monthly, not adjusted for inflation).

• Advance Durable Goods... -0.5%
• Advance Wholesale Inventories... +2.2%
• Advance Retail Inventories... 0.1%

 

When Will the New Normal Settle In?

It seems everyone wants to know when this will end. The ideas being...  if covid were conquered or the supply chain crisis were resolved, as well as a host of others... things will get back to normal or at least a new normal. I guess we all want a bit of stability.

I'm not an expert in these matters, but like any red blooded knucklehead, I must tackle the question or get tackled back.

The biggest complaint seems to be inflation. I would suggest that the holidays could end the excessive consumer spending. I base the term excessive on the massive jump in durable and non-durable goods back in about April. Non-durables seem to be decelerating somewhat, although not rapidly. Of course many of these items can link back to imports and current port congestion.

I suspect this will begin to drop rather quickly in January. That might reduce the stress on the ports and some of the inland shipping. Maybe February for that part. 

As a result the ever escalating inflation trend might flatten out a bit. Note I said flatten out a bit... not drop. A lot of uncertainty regarding that. Just because the port congestion and inland shipping might be easing up at that point, does not mean the cost of what is being imported is going down. Not by a long shot, in my opinion. Granted the supply might outstrip some of the supply, but not every case. 

I really should bring up the 800lb gorilla that started this mess... Covid. As any good American, I tend to look at things American, without consideration of the rest of the globe. And Covid is a Global Pandemic. 

Best case scenario would be sometime next summer, the globe will have sufficiently wrestled the death rates to an acceptable level. It would be foolish to think it is going to be eradicated anytime soon. In the interim, there will continue to be stoppages in all manner of production, distribution amongst many of our trading partners.

This will continue create spot shortages, panic buying, hoarding, etc. I would expect food to be inflationary for another year, as weather related issues driving up costs, require another growing season. Energy is dependent on consumption, so not sure it will go much higher and could go lower... if consumption fell. A recession would certainly drive down the price and reduce inflation on many items... other than food.

Maybe, just maybe, a new type of normal will evolve, nearing New Year's Eve 2023.  

But then, that would assume no new variant crops up that is more transmissible or deadlier or vaccine resistant or some combination or even all.

Maybe the new normal is already here and we just need to adjust. [sigh] And a newer normal, one year from now... etc. 

Retail Trade Report for October, 2021

Another month and another retail sales report from the Census Bureau. It was a healthy leap of 1.7% and after adjusting for inflation is still 0.8%. We are still buying more stuff. 

This is the 3rd straight monthly increase in buying of "stuff", so a trend has maybe set in... despite inflation.

The big winners would be in Gas Stations, Electronic Shopping and Mail Order Houses, Electronics & appliance stores, Miscellaneous store retailers, Building material & garden eq. & supplies dealers, and Department stores.

The stragglers would be Furniture & home furn. stores and  Food & beverage stores (flat after adjusting for inflation). 

Weaknesses would include Food services & drinking places, Clothing & clothing accessories, and Health & personal care stores.

Any thought of consumer buying slowing down and easing inflation, simply did not exist from this report.

Up next Wednesday, the 24th, will be the PCE, which is forecasted to 5.08% year over year and 0.7% for the month. Core PCE is forecasted as 4.09% year over year and 0.44% on the month.

I should note the CPI from the BLS was underestimated this last reading, but the PCE (BEA) monthly was overestimated on the last reading. I will attempt to elaborate on the 24th, as to what all that means to me.

Ouch! Medicare Part B

Medicare B standard premiums jumped from current $148.50, up to $170.10, starting in January. A whopping 14.5% increase. Previously the forecast had been a 6.7% increase, so it was a bit of a surprise... at least to me. 

On the other hand, the officials had been predicting over the past few years, that some significant rises in Medicare Part B were possible.

Up first is the announcement, which was made late on a Friday evening. Doesn't that always seem to be the case for bad news. 

I should point out my premiums are reimbursed via a company I retired from. There are a multitude of people that are not that fortunate. 

Probably the thing that irritates me most is captured in the following articles. 

AARP

CMS officials stressed that while the 14.5 percent Part B premium increase is a stiff one, the Social Security cost-of-living adjustment (COLA)  — at 5.9 percent, the largest in 30 years - is estimated to average $71.40 per recipient. So even after the increase in the Medicare Part B premium, most Social Security recipients, whose Part B premiums are typically deducted from their Social Security benefits, will still see a net increase in their monthly check. The COLA goes into effect in January.

CNN 

The Centers for Medicare and Medicaid Services played down the spike, pointing out that most beneficiaries also collect Social Security benefits and will see a cost-of-living adjustment of 5.9% in their 2022 monthly payments, the agency said in a statement. That's the largest bump in 30 years.

"This significant COLA increase will more than cover the increase in the Medicare Part B monthly premium," CMS said. "Most people with Medicare will see a significant net increase in Social Security benefits. For example, a retired worker who currently receives $1,565 per month from Social Security can expect to receive a net increase of $70.40 more per month after the Medicare Part B premium is deducted."

CPI-W, which is what C.O.L.A. is based on, is like all the CPI indexes... it looks backward to see what inflation has been. That adjustment simply brings pay, etc. back to current pricing, without any adjustments to past purchasing power losses. Which would be about $750 of lost purchasing power, since start of 2020. That would be a lot of money for someone living on $14K per year of Social Security before Part B. That would be $2 per day, which isn't even coffee money for any of these guys, but might be a meal for a lot of people.

Which makes those comments referenced, as a bit insensitive to say the least. They seemed to have missed the class on reduced purchasing power by way of inflation and decided the purchasing power factor was to be ignored.

Basically, it would seem the powers that be, consider the 5.9% C.O.L.A. as "free" money and that the Medicare B crowd should be happy with paying a big portion of that "free" money for Part B. It should be noted if inflation had been lower, say 1.0%, the "hold harmless" clause would have raised the overall Part B premium to offset that as well. 

In that 1.0% scenario, the hold harmless clause would have amounted to "0" cost of living adjustment for those making $1,000 per month and less, before Part B deduction and possibly limit next year as well, depending on C.O.L.A. Enough with the ranting... almost.

The law is the law and the raises are quite likely necessary... it is the rather flippant remarks being made.

Of course we should think about another item in the press releases, lest we forget (pun intended) ... setting aside money just in case the controversial Aduhelm et al (Alzheimer's drugs) might be approved and are really, really expensive (why am I not shocked). 

Setting aside that money for that purpose would contribute to part of the Medicare B rise, as Congress had stated the fund needed to be made whole starting in 2022.

Now for the political side of all this and yes everything is political. Press coverage of the "Build Back Better" plan has included several mentions of prescription drugs, donut holes and costs to the elderly. Certainly an attempt to appeal to us elderly folks, even though it is a piddling amount within the overall plan. 

Of course that is Part D of Medicare, not the Part B, I have been railing about. Expect those lines to be blurred quite quickly. How quickly? I expect the chatter to begin on the Sunday talk shows and then ramp up from there. One party will be talking it up much more than the other. It's all about a bigger agenda... we are nothing more than a political talking point. 

An example would be the CNN article was big and bold on their website this morning and now it's pushed to smaller font down the page. Not only is the message important, but the timing as well. I'm such a cynic! 

Oh well, another day another dollar, except it is now another $2 a day... lost forever.

CPI for October, 2021

Holy Toledo!!! And other places as well. The CPI-U came in at a staggering 6.2% YOY, well above anybody's expectations. Although given yesterday's PPI, the expectations should have been revised upward. 

There were no hints of slowdown in nearly any category, with maybe the medical category, which has been rather benign over the past 12 months. I cannot accept that as being a long term trend, no matter how much I wish it were true. 

Even my own personal household cpi rate, woke me up. While not in the same impact as the CPI-U, it was 

4.16%, with the monthly increase similar to the CPI-U.

Realistically, my being under the CPI-U is largely due to hoarding prior to the referenced timeframe and subsequent easing of quantities. Seriously, there are only so many cans of pork and beans that a person can eat in a lifetime. (Unlike the annual revision of various weighting of items, I revise monthly.)

The Real Earnings report was also released. While it is oft cited that wage increases are inflationary, it should be pointed out that current wage increases are a result of previous inflation.

Real Hourly earnings based in 1982~1984 dollars, fell this past month, as did a dip in hours worked, which translates into even steeper weekly earnings drop. 

With both Producer prices at the final and intermediate demand levels still rising, it is hard to foresee any glimpse of peaking anytime soon. Then there is the importation of inflation. We are a net importer and inflation is ramping up among our trading partners. 

Most notably would be China, where producer price inflation is north of 10%, but where the Government is forcing producers to hold the line to keep Chinese consumers in the 1% inflation range. 

How could these companies survive in such a climate? Cranking up prices well beyond 10% for foreign customers.  Some of that is likely a part of the intermediate demand increases, which are not tapering at this time. 

The forecast for November is 6.6%~6.9%. October was 6.2% compared to a 5.7%~5.9% expectation. For the record, 6.6% would be the highest since June, 1982.

Then there is some theoretical relief from the Federal Reserve, with an interest rate increase to slow inflation. The FED looks that the CORE inflation and not the core CPI-U from the BLS, but rather the Core of the PCE, from the BEA. 

The FED has frequently cited the need to establish this Core at 2%... over a period of time. Not real sure what the timeline would be, but the past 5 years has shown a 2.11% annual rise. Yet the thinking is the FED action will not happen until next summer. 

The problem is the FED is stuck between a rock and a hard place. When that theoretical raise occurs, the capital/financial markets could be damaged. 

In my opinion, the FED keeps talking up transitory, while hoping the consumer finally capitulates on spending due... to inflation. They can then claim they were right all along.

It is so difficult to remain optimistic. 

Producer Price Index for October 2021

The release of October's report on the Producer Prices took place this AM.

The Producer Price Index for final demand increased 0.6 percent in October, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices moved up 0.5 percent in September and 0.7 percent in August. (See table A.) On an unadjusted basis, the final demand index rose 8.6 percent for the 12 months ended in October.

That's all and good, but there was a taste of hope (pun intended) in the food index, which was flat for the month to month (actually down -0.4%).  The indigestion comes from the realization the consumer price inflation has not kept up with the producer price inflation. So until consumer prices catch up, which could be combined with Producer Price final goods decrease (It is possible as indicated above), the next few monthly reports of CPI could be difficult.

The intermediate goods Producer Price section, indicates that all the increases have yet to be passed on to the final goods section, which is then passed on to the consumer. Oh Joy!! Upstream from that is a whole bunch of stuff that has yet to be passed on to that intermediate thingy.

The final demand costs of most everything else was on the rise, especially energy.

Up tomorrow will be the CPI and Real Earnings.

Global Warming!

This tends to be a sensitive subject, but as there will likely be no visitors or feedback, why not express my stupid opinion? Opinions are like theories, or so some #$&*s say.

Once you peal back the layers of this subject, from the outright liars, conspiracy theorists and fraudulent experts; as well as the predictors of doom, blathering fools trying to make every weather event a sign of the end times; you finally get to the core, in my opinion. Yes the earth is indeed warming.

That it is due to humans should go without saying. There are too many of us. Getting even half of us humans to agree on substantial emissions is folly, so we should not expect any real, meaningful and/or humane solution. Everybody, except for a small minority... wants someone else to do the heavy lifting.

The latest mantra is we need to cut net emissions by half by 2030 and to net zero by 2050. As I understand it the earth does have some capacity to absorb these emission, but we have been exceeding this for decades. It is the carbon sinks vs carbon emissions. As an example only, if the earth has the capacity to absorb 1 million of something through its various carbon sinks of oceans, forests, etc. and we are emitting 3 million of something, then cutting in half would mean a reduction of 1 million and net zero would require the other million in excess.

The problem in reality is the carbon sinks are being eroded, through clearing of forests, etc. Oceans can only absorb so much, similar to a glass of water. You can keep putting an ounce in that glass, until it finally holds no more.

Some of those carbon sinks are from centuries past and rest in ice. As those ice caps melt, those captured emissions are again released. And those ice caps are going to melt. There is no turning back from that conclusion, as we haven't halted the temperature rise and a reversal is what is required to save the ice caps. This reversal will not happen in my lifetime and frankly... not in my grandchildren's lifetime. Maybe their grandchildren's lifetime. 

My point being that we cannot achieve the 2030 or 2050 goals, unless technology is developed (and quickly) to capture these emissions.

Climate change is happening and coastal areas appear to expect everyone else to do something. They need to be moving to higher ground. Inland, storms will have greater impacts, so structures need to be built stronger. There are numerous issues coming, yet nothing is actually being done. Supposedly, green energy will save us all, but frankly... that is evolving much too slowly to have any impact during this century. Coal demand is higher than ever in places like China and India. Crude oil is still in high demand as evidenced by the price of crude and Biden's request for OPEC to pump more.

The have nots are needing helps from the haves. First and foremost, the haves are viewing this as a money making opportunity.

Just like an approaching hurricane, people sit on their hands till the very last minute, to do something... generally when it is too late.

I suppose humans have survived worse, but have any civilizations?

I will personally be able to meet that net zero emission target by 2050 and what is troubling to me... I might meet it by 2030 or even earlier.