Inflation Is Rising, But The Media Won't Tell You That

Why Data Matters More Than Narrative

Amazingly enough, this month’s bizarre spin on inflation comes not from the Bureau of Economic Analysis and the December 2023 Personal Income and Outlays Report, but from corporate media’s treatment of that report.

The report was very succinct and straightforward, as it usually is. Inflation ticked up a bit for the month, but is down year on year.

The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.2 percent (table 5). Real DPI increased 0.1 percent in December and real PCE increased 0.5 percent; goods increased 1.1 percent and services increased 0.3 percent (tables 3 and 4).

As a quick check of last month’s data shows, the 0.2% uptick is larger than the 0.1% decrease in headline inflation from November, as well as the 0.1% increase in core inflation.

However, corporate media opted to report this data as signs of “cooling” inflation. Instead of noting the acceleration of consumer price inflation as measured month on month by the PCE Price Index over the past few months, the media is focusing on the year on year figures.

While not technically “wrong”, the focus on the one dimension to the exclusion of any other reporting dimension gives a slanted and unrealistic view of consumer price inflation, at a moment when the objective data is more important than ever.

Beware the corporate media narrative, especially on the economy. It frequently is wrong, and this month is no exception.

Initially, corporate media spun the Personal Consumption Expenditures measure of inflation as the reason Treasury yields retreated to start the morning trading.

Treasury yields fell on Thursday after a report showed faster than expected economic growth in the fourth quarter failed to push inflation higher.

The yield on the benchmark 10-year Treasury note dropped nearly 5 basis points to 4.13%, while the yield on the 2-year Treasury note dipped more than 6 basis points to 4.314%. Yields move inversely to prices and a basis point equals 0.01%.

However, no sooner had the media reported this move in Treasury yields than the yields themselves reversed course, and by noontime only the 30-Year Treasury Yield still showed a decrease on the day.

Yet even without the immediate rationale of market movements, corporate media still preferred to present the PCE report data as a sign of cooling inflation, giving rise once again to Wall Street’s favorite speculation—that the Fed will soon be cutting the federal funds rate.

Inflation has cooled to the point where Federal Reserve policymakers can think about cutting rates. But the decision on when to cut will probably come down to what the job market is signaling.

Even in acknowledging the uptick in month on month inflation, corporate media managed to frame the data as “cooling inflation.”

An important inflation gauge released Friday showed that the rate of price increases cooled as 2023 came to a close.

The Commerce Department’s personal consumption expenditures price index for December, an important gauge for the Federal Reserve, increased 0.2% on the month and was up 2.9% on a yearly basis, excluding food and energy. Economists surveyed by Dow Jones had been looking for respective increases of 0.2% and 3%.

On a monthly basis, core inflation increased from 0.1% in November. However, the annual rate declined from 3.2%. The 12-month rate is the lowest since March 2021.

Only alt-media sites such as Breitbart dared to buck that trend and suggest that inflation might actually be heating up once more.

A key measure of inflation in the U.S. showed that prices climbed again in December, suggesting the respite from rising prices seen in the prior month was short-lived.

The personal consumption expenditure price index rose 0.2 percent compared with the prior month, in line with expectations and an increase from the negative 0.1 percent reading for November. This is the biggest month-to-month increase in the PCE price index since September.

The core rate of PCE inflation, which excludes food and energy costs, rose 0.2 percent. That matched the consensus forecast and was slightly higher than the 0.1 percent increase seen in November. This was also the biggest increase since September.

Of course, all the media reporting is addressing the same BEA Personal Income and Outlays Report, so we never need to rely on the media framing. We can interrogate the data ourselves and determine what it is telling us.

When we look at the year on year shift in consumer price inflation per the PCE Price Index, we see that the trend on inflation is still down.

However, the flattening out of headline inflation from November to December at a minimum suggests that disinflation may be bottoming out, and at a level above the Federal Reserve’s 2% holy grail target.

Yet the challenge with the “cooling inflation” narrative is that, month on month, the PCE Price Index shows inflation rates significantly higher than the prior two months.

Inflation arguably was cooling from September through November. In December that trend abruptly ended.

We should also take a moment to discuss another spin technique the “experts” like to use when massaging inflation numbers: using an annualized rate versus a year on year change.

If we annualize the monthly inflation percentage shifts, while we can plausibly claim in that instance that PCE inflation was actually below 2% for October and November, but only if we are willing to accept that January 2023 had consumer price inflation per the PCEPI was at 6-7%.

Moreover, not all prices are showing signs of a disinflationary or deflationary cooling trend. As we have seen in multiple months, including November, service prices continue to rise even as goods prices are falling.

From the perspective of measuring inflation, durable goods remain in deflation while services remain in higher than normal inflation.

Yet even within the deflation being exhibited by goods prices, the “cooling” narrative is stretching credulity a bit far, while the month on month rise in service price inflation is an argument for inflation heating back up.

The closes we get to “cooling” inflation is that goods prices are still in deflation, although the prices are deflating less quickly than in prior months.

Even food price inflation ticked back up in December, although the year on year trend is still (for now) one of disinflation.

That year on year trend does not carry through to the month on month data, and month on month food price inflation went from 0.12% down in November to 0.06% up in December.

Even energy prices showed signs of renewed inflation in December—and energy prices have been the primary driver of disinflation since July of 2022.

However, two months of month on month deflation came to an end in December, with energy prices moving back up by approximately 0.3%.

Exactly what drove energy prices up in December is somewhat uncertain, as crude oil prices and gasoline prices in the US both showed deflation through the last month of 2023.

However, as oil prices are climbing again this month, it is certain that energy price inflation is also staging a return to economic prominence.

With energy price inflation heating up once more, it is difficult to see how the rest of the inflation matrix will not quickly follow suit.

The danger in focusing too much on the year on year inflation rates, and not enough on the month on month inflation rates, is that it is the month on month data which contains the early indicators of coming trends. Month on month provides an immediate snapshot of the current pace of inflation. Year on year provides a broader perspective of inflation over time.

Corporate media, in announcing that inflation has “cooled”, is focusing almost exclusively on the year on year data, while ignoring the month on month data.

Compared to where consumer price inflation has been, the current inflation benchmarks do indeed show “cooling” from one year ago.

Alas, when we look at where inflation is heading next, the ‘cooling” that is visible in the year on year numbers is already over, and a new warming trend has already begun.

Without ever getting down to the Federal Reserve’s holy grail figure of 2% year on year inflation, consumer price inflation as measured by the PCE Price Index is already starting to rise, and if the underlying pricing pressures which are driving that increase continue, inflation could rise quite a bit before stabilizing again.

The trend in consumer price inflation is not at all encouraging, despite what the corporate media narrative claims.