Inflation in the USA

The long-term decrease in the labor force participation rate described in   this post  is accompanied (and is a principal part of) by the drop in the employment-population ratio. Figure 1 presents the most recent data and two trends from 1975 to 2000 and from 2000 to 2025. Two drops in 2009 and 2020 are the most prominent. The workforce leakage is a challenge to the US economy: 1% drop is equivalent to 2,600,000. The drop by 7.5% in 25 years is equivalent to 18,000,000 people leaving the workforce. For me, it is not clear what is behind such an exodus. As mentioned before - older people (50+) are rather increasing their participation.  Younger people's failure to get jobs in the same proportion as in the past is a clear economic symptom as based on the increasing difficulties in personal income growth.  Figure 1. employment-population ratio in the USA

In our previous post , we described the difference between the ( BEA ) published and predicted by our model values of the real GDP per capita, rGDPpc. We have developed and tested since 2005 a model linking the change rate in rGDPpc, and the change rate of the unemployment rate, u ( paper here ):               du =  a  +  b d[ ln (rGDPpc)] ,   where  a  and  b  are regression coefficients, which depend on the change in measurement units. This difference between the published and predicted values was explained by the government transfer in 2020 and 2021 which has never been observed before. This was “helicopter” money taken from some sources out of the US economy, i.e. not generated in any economic activity, and considered as a part of the economy. In this post, we describe the unique properties of this transfer and explain the conflict between  rGDPp c and  u .   ...

  Re-estimation of price inflation in the US by correction for the change in the Federal Reserve's assets from 2010 to 2021   Currency devaluation is a process different from price inflation driven by economic factors. The helicopter money poured into an economy is an equivalent of devaluation – one gets more units of payment without a corresponding change in the amount of goods and services to buy. The US Federal Reserve inserted money through various mechanisms since 2009 as Figure 1 shows (borrowed from the Reds website). One can see that the 2020 surge was extremely large like an explosion. We discussed this effect and described its effect at the current inflation estimates.  We are expecting price deflation  in the second half of 2022.   The model linking the change rate of the real GDP per capita, rGDPpc, and of the unemployment rate,  u , is critically dependent on the estimates of both parameters. The reaction to the measures of the Federal Reserve ...

The consumer price index for all items changed in the USA by 7.5% from the previous year. This is the highest change since the 1980s. One may overestimate the importance of this jump in prices for the economy. The situation in the 1970s and 1980s is quite different from the current one, however. The historical inflation was driven by economic factors - dramatic growth in the labor force associated with the growth in the labor force participation rate for women. This process ended when nearly 90% of women joined the labor force in the early 1980s compared to less than 50% in the 1960s. The current situation with the labor force is the opposite (the participation rate has been decreasing since the late 1990s) and the real economic forces suggest deflationary processes.  Money printing is the reason for the observed price increase in the USA. This time the money was delivered directly to people and businesses unlike during the period between 2008 and 2020. Essentially, the same volume...

The BLS publishes the CPI and PPI (commodity data) estimates at a monthly basis. One can estimate the inflation rate on a monthly basis as well using the monthly estimates separated by one year period. For example, the rate of inflation in December 2022 can be obtained as the difference between the CPIs published in December 2022 and December 2021 divided by the CPI in December 2021. This is a standard definition of inflation. Figure 1 presents the rate of CPI and PPI inflation in the USA since 1967. One can see that in the past the PPI and CPI inflation rates were approximately the same. Essentially, they were practically equal between 1975 and 1982. The reason they started to deviate is a dramatic change in their definitions around 1980. The CPI inflation now looks much lower than the PPI. Figure 1. CPI and PPI inflation rate To understand the current link between the CPI and PPI one can apply simple regression analysis and obtain regression coefficients which make both curves closer...

 I n the previous post , we showed that the CPI has been following the PPI since 2000 with a reduction factor of 4.4 and a constant of .067, i.e. that the CPI/PPI regression shows that if to multiply the change in CPI by 4.4 and subtract 0.067 one obtains the PPI with the coefficient of determination of Rsq=0.83.  The PPI (of commodities) has many components and we have chosen Chemicals (06) and Metals (10) as most relevant to the dramatic changes in the commodities supply. Fuels were also analyzed in the previous post. Figure 1 compares the inflation rate (m/m on a yearly basis) of the PPI and Chemicals. One can see that the overall PPI practically coincides with the Chemicals PPI over the whole period after 2000. Chemicals have a weak reaction to the economic slack in 2020 and extraordinary reaction to the changes in natural gas and other energy sources in 2021. The rate of PPI inflation reaches 24% as well as the rate of Chemicals PPI inflation. A small drop at the end of 2...