By Graham Summers, MBA | Chief Market Strategist
Has inflation been slain?
According to the official data, the answer is “maybe” at best, but most likely “no.”
There are three official inflation measures in the U.S. They are:
- The Consumer Price Index (CPI).
- The Producer Price Index (PPI).
- Personal Consumption Expenditures (PCE).
CPI has effectively stopped declining for six months now. A lot of commentators are pointing to the recent uptick from October’s data as indicating that inflation is coming back, but the reality is that this is a noisy data set that is subject to multiple revisions. Put simply, this data point shows CPI is close to target but refusing to decline any further.
When we remove the noisiest portions of this data set (food and energy), Core-CPI hasn’t declined since July. Again, this doesn’t necessarily mean it’s about to surge higher… but it does indicate that inflation isn’t moving towards the Fed’s target of 2% anymore.
This brings us to the Producer Price Index (PPI).
The latest round of data (October) was released mid-November. It reported an uptick in inflation with a month over month reading of 0.2% and a year over year reading of 2.4%. This chart is more worrisome for those claiming inflation is on the rise again.
As was the case with CPI, when we strip out food and energy, the chart isn’t any better.
Which brings us to the Fed’s preferred measure of inflation: Core-Personal Consumption Expenditures (PCE), or PCE excluding food and energy prices. This is arguably the single most important data point for inflation as it is the one the Fed watches closely. It has flatlined since May 2024.
Add it all up, and at best, we can argue that inflation has stopped declining for the last six months. At worst, you could make a case that any spike in energy prices would result in a major uptick in inflation. Remember, the ONLY parts of the CPI data that is down year over year are energy prices (and used cars). Every other segment of the data continues to rise in price!
Put simply, the picture for inflation is at best blurred and at worst, indicating a second wave if coming.
We fully believe inflation is going to be one of the dominant themes of 2025. Take a look at what gold or bitcoin imply is coming and you’ll see what we mean.