November CPI report like the gift of an ugly sweater

The November CPI data is a little like that ugly sweater you got for Christmas last year. It was an interesting topic of conversation, but it wasn’t good for much by the time January rolled around.

The November CPI data came out much cooler than expected, but most analysts don’t seem to be putting much stock in the report due to the chaos created by the government shutdown. The BLS never released any October data, and the November report came out a week later than scheduled.

As the BLS noted, it didn’t collect any survey data for October, and data collection didn’t resume until November 14. The agency claimed that it was able to use “nonsurvey data sources” to make the index calculations.

In other words, they made stuff up.

CNBC reported, “Economists may be hesitant to read too much into this report as the start of a downward trend in inflation because of the lack of October comparison data in the report.”

Quite frankly, I’m always reluctant to read too much into these reports because they understate price inflation by design. The government revised the CPI formula in the 1990s so that it understated the actual rise in prices. Based on the formula used in the 1970s, CPI is closer to double the official numbers. So, if the BLS used the old formula, we’d be looking at CPI closer to 6 percent. And using an honest formula, it would probably be worse than that.

However, suspect that this government data drives decision-making, so we have to pay attention to what it tells us.

And the November report tells us that inflation is still well above the Fed’s stated target, despite being “cooler than expected.”

November CPI by the numbers

Prices increased by 2.7 percent on an annual basis last month, according to BLS data. The forecast was for a 3.1 percent increase.

The headline number was down from 3 percent in September, but still above the low of 2 percent.

Compared to September's reading, prices were up 0.2 percent.

Stripping out more volatile food and energy prices, core CPI fell to 2.6 percent on an annualized basis. That was much lower than the 3 percent forecast.

Core CPI was up 0.2 percent from September’s reading.

Over the last five readings (with no October data), core CPI has increased by 0.2, 0.3, 0.3, 0.2, and 0.2 percent, annualizing to 2.9 percent. Core CPI has been mired in this range for well over a year.

Even though the data was cooler than expected, it was still well above the mythical 2 percent target. And as already noted, it's impossible to determine how the report fits into the broader trend due to the lack of October data.

In a sane world, a 3 percent inflation print would put the brakes on monetary easing. However, when you have a giant debt black hole, the economy can’t function in even a modestly high-interest-rate environment. That means the powers that be will spin data; however, they must justify rate cuts.

They have a choice between propping up the debt-riddled, bubble economy and inflation.

They picked inflation.

The real inflation story

CPI only tells part of the inflation story. It reveals fluctuations in consumer prices. However, rising consumer prices are just one symptom of inflation, which, properly defined, is the increase in the supply of money and credit.  

When we look at money supply data, we find the inflation rate is rapidly accelerating. As the Federal Reserve revs up the money-creating machine even higher, the money supply is already growing at the fastest rate since July 2022, in the early stages of the tightening cycle.

After peaking in April 2022, the money supply began to decline as the Fed hiked rates that year. The money supply bottomed in October 2023 and began increasing again. The money supply is now well above the pandemic peak.

And money creation has accelerated over the last several months.

So, why would the central bank continue to loosen monetary policy even when faced with sticky inflation?

Because, as I have been saying for months, the Fed is in a Catch-22.

The Fed needs to cut interest rates and run quantitative easing to support the debt-riddled bubble economy. But it also needs higher rates to keep price inflation under control.

Obviously, it can’t do both.

This “cooler” CPI report will throw more fuel on the easing fire and raise the possibility for more cuts next year, despite the central bankers’ efforts to tamp down expectations for further easing.

In other words, you get more inflation -- despite what the CPI data might indicate.

I think I'd rather just have the ugly sweater.