Inflation indices like the Consumer Price Index (CPI) and the Producer Price Index (PPI) have been in the news a lot since inflation began running hot in the spring of 2021.
As their names suggest, these seasonally-adjusted indices provide a measure of the inflation experienced by different groups within the U.S. economy. The CPI represents the measure of inflation experienced by all U.S. urban consumers (about 93% of the population) and the PPI measures inflation experienced by U.S. businesses that either produce goods or provide services.
The Bureau of Labor Statistics reported what was considered to be positive news for both the CPI and the PPI inflation indices for the month of October 2023. The CPI was unchanged from its reported level in September 2023, although it was up 3.2% year-over-year. The PPI "unexpectedly" fell by 0.5% from its September 2023 level, but was still up by 1.3% year-over-year.
How is this information less than useful? To understand why, try answering these two questions using the information presented in the previous paragraph:
- How will the CPI and PPI change from October to November 2023?
- How will the CPI and PPI change from October 2023 to October 2024?
If you're in the business of looking forward, as many analysts and business managers have to be because they're making decisions and plans about what to buy or what multi-million dollar investments to make, this information tells you virtually nothing about where inflation is heading. Their getting the answer wrong can cause big losses and/or jobs.
In 2010, money manager Barry Ritholtz slammed the CPI in particular and explained why to Time's Justin Fox:
Another we have to look at as not helpful at all is CPI. Thanks to the Boskin Commission, it has been rendered more or less meaningless. He (economist Michael Boskin) deserves credit for taking an otherwise valid economic indicator and pissing all over it. (Here’s Barry going on at length about his disdain for Boskin.)
Meanwhile, Moody's economist Mark Zandi faulted the usefulness of the PPI, grouping it with other economic indicators he described as "either often misleading or the signal to noise ratio is very high and thus hard to interpret". (Note: That's a verbatim quote. Zandi most likely meant the noise-to-signal ratio was very high for the indicators he cited, as that would be a bad thing for getting a good reading on the direction of the economy.)
Speaking of which, did you know the Federal Reserve, which is chartered with the jobs of providing for price stability and maximizing the number of jobs in the U.S. economy, doesn't have a good understanding of inflation? Here's how former Fed governor Daniel K. Tarullo put it in a 2017 paper:
The substantive point is that we do not, at present, have a theory of inflation dynamics that works sufficiently well to be of use for the business of real-time monetary policy-making.
It's not like the Fed doesn't have inflation data, as the CPI and PPI are just two measures of it. But it's clear doing anything useful with the information provided by the inflation indices is something of a problem for the people who have to be the most on top of it.
The CPI and PPI data reported to the public feeds into future expectations for inflation, and as Barry Ritholtz colorfully put it earlier this year, "inflation expectations are useless":
They aren’t merely lagging, backward-looking indicators, but instead, inform us as to what the public was experiencing about 3-6 months ago. Typically, it takes people a few weeks or months to subconsciously incorporate broad, subtle changes into their internal mental models, and longer to consciously recognize those nuanced shifts.
Beyond short-term trend extrapolation, inflation expectations have little to no ability to provide insight into the intermediate-future (e.g., 6-12 months) inflation. As to the longer-term, the 5-Year Forward Inflation Expectation Rate are ridonkulously, hilariously, laughably useless. They are so silly as to be “Not even wrong” — just goofy irrelevant guesses.
Meanwhile, Bloomberg Markets' Mark Cudmore takes aim at another frequently reported measure of inflation expectations that doesn't track with the CPI:
The inflation expectations reading from the University of Michigan is again being cited as a relevant input. It’s not. Anyone who is allowed to touch any of the real buttons in a trading room should ignore it.
It’s completely useless, not just as a guide to levels, but even directionally. No amount of data-mining can validate any useful signal from the reading since the inflation regime changed several years ago.
A 2021 paper by the Federal Reserve Board's Jeremy Rudd confirms the Fed's analysts have little-to-no confidence in the inflation expectations data.
Economists and economic policymakers believe that households’ and firms’ expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case is made that adhering to it uncritically could easily lead to serious policy errors.
As economic indicators, inflation indices are backward-looking metrics that are not useful for divining where inflation will go in the future. To the extent they are useful, it is as a means of quantifying how prices changed in the past. Inflation expectations data doesn't even have that going for it.
Previously on Political Calculations
- Less Than Useful Data in the World of Big Data
- Less Than Useful Data: Consumer Confidence
- Less Than Useful Data: FHFA House Price Index
- Less Than Useful Data: Index of Leading Economic Indicators
- Less Than Useful Data: Weekly Chain Store Sales
- Less Than Useful Data: Challenger Layoff Announcements
- Less Than Useful Data: ADP Employment Index
- Less Than Useful Data: Inflation Indices
Image credit: Microsoft Bing Image Creator. Prompt: "A picture illustrating the concept of prices rising over time. Digital art, 4k."
Labels: ideas
Welcome back from the Thanksgiving holiday! We're pleased to confirm that not much happened to affect stock prices during the week that was, so if you took the entire week off, you really didn't miss much.
That's because there was little news originating in the U.S. to give markets a convincing direction during the past week. The Thanksgiving holiday-shortened trading week saw the S&P 500 (Index: SPX) close at 4559.34, up 1.0% from the previous week's close.
For the latest update of the alternative futures chart, we find the index is continuing to follow a flat-to-slightly rising trajectory. That puts it above the unadjusted dividend futures-based model's short term projections, but that's only because we've chosen to not extend the redzone forecast range to account for the short term echo from October 2023's outlier noise event.
That echo effect is a result of the dividend futures-based model's use of historic stock prices as the base reference points from which it projects the future for the S&P 500. Those base reference points are taken from the S&P 500's value some 13 months, 12 months, and 1 month earlier. October 2023's short-term spike in long-term U.S. Treasury rates occurred just one month ago, so the model's raw projections are being skewed by the volatility in stock prices at that time. The echo will stop affecting the model's projections in one week, coinciding with its dissipation.
Our summary of the past week's market-moving headlines is blissfully short:
- Monday, 20 November 2023
-
- Signs and portents for the U.S. economy:
- BOJ minions counting on Japanese firms giving out big raises to end never-ending stimulus:
- Bigger trouble developing in the Eurozone:
- Germany heading for another poor quarter, "arduous" recovery: Bundesbank
- Poor euro zone bank valuations seen a drag on credit growth: ECB
- ECB minions signal they're ready to sit on their hands:
- Nasdaq leads Wall Street gains as Microsoft hits record
- Tuesday, 21 November 2023
-
- Signs and portents for the U.S. economy:
- Oil edges lower on caution ahead of OPEC+ meeting
- US existing home sales slump to more than 13-year low, prices accelerate
- Fed minions say they'll stay hawkish on inflation, start to see other problems:
- 'Hawkish' FOMC Minutes: Warn On Fading Consumer, Financial System Stability Risks
- Fed shifts into cautious policy mode as risks become more two-sided
- Bigger stimulus developing in China:
- BOJ minions see return of inflation, consider ending never-ending stimulus:
- ECB minions worried about inflation, drag from real estate on Eurozone banks:
- ECB says property slump could last years in threat to lenders
- ECB's Lagarde warns against premature inflation celebration
- Eurozone government minions want less spending next year:
- S&P 500, Nasdaq close down, ending 5-session winning streaks; retailers, tech weak
- Wednesday, 22 November 2023
-
- Signs and portents for the U.S. economy:
- OPEC+ postpones policy meeting to Nov 30, oil falls
- US mortgage interest rates fall to two-month low
- US durable goods orders fall on weakness in transportation equipment sector
- Bigger stimulus developing in China:
- Majority of economists want BOJ minions to end never-ending stimulus next year:
- ECB minions starting to think they might be done with rate hikes and may need to start cutting them instead:
- ECB's Nagel: rates at peak or close, rules out hard landing
- ECB's Centeno sees conditions to reverse rate cycle 'in the near future'
- Nasdaq, S&P, Dow post pre-Thanksgiving gains; yields rise while oil pares losses
- Friday, 24 November 2023
-
- Signs and portents for the U.S. economy:
- Oil settles lower but notches weekly gain ahead of OPEC+ decision
- White House stalls ethanol expansion in Midwest amid price concerns
- Bigger trouble developing in China:
- China launches social security fund-backed $707 million investment fund in Shanghai
- How to save China’s economy
- Bigger trouble developing in Japan:
- Japan's factory activity shrinks for 6th month on weak demand - PMI
- Japanese inflation picks up as BOJ pivot bets grow
- Bigger trouble developing in the Eurozone:
- ECB minions told to "resist urge" to cut rates sooner:
- Wall St ends mixed in truncated Black Friday trading
The CME Group's FedWatch Tool continues to expect the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% through next April (2024-Q2). Starting from 1 May (2024-Q2), investors expect deteriorating economic conditions will force the Fed to start a series of quarter point rate cuts at six-to-twelve-week intervals through the end of 2024, unchanged from their expectations of a week earlier.
The Atlanta Fed's GDPNow tool's estimate of real GDP growth for the current quarter of 2023-Q4 ticked back up to +2.1% from last week's projected +2.0% annualized growth.
Image credit: Angry Bull photo by Carlos ZGZ on Flickr. Public domain image. Creative Commons CC0 1.0 DEED.
It's officially "Black Friday" in the U.S. This is the traditional day that those who get an extra day off work following Thursday's official Thanksgiving holiday use to start the mad rush of shopping for Christmas presents.
Which brings us to a problem that only a select number of shoppers have. What can you get for those people you know who really like maths?
In previous years, we've recommended maths-inspired objects like Klein bottles and oddly shaped objects that roll smoothly, which certainly make for unique gifts. This year, we're going to suggest something that's both a unique item and highly interactive. A card game based on blackjack, or Twenty-One, that takes the old-fashioned game to a new level.
21X is a new card game developed by Naylor Games that was successfully kickstarted in the U.K. earlier this year. Here's how the creator's described the game:
21X is a light, fast paced card game that fuses Blackjack with algebra.
Like Blackjack, you'll be dealt 2 cards with the objective of getting them to add up to 21. However, the cards you're being dealt, have a twist to them... they're algebraic formulas!
It's a perfect gift for maths loving friends and family members, a fun algebra learning tool for schools and fantastic for avid newspaper puzzlers.
We know the mere mention of the word "algebra" is enough to scare many, but check out the following less-than-three minute long preview from Board Game Happy, which provides a very quick lesson in how to play it:
Here are the written rules from 21X's Kickstarter site:
Most cards feature N, X or both on them. N is equal to the number of cards you have, while X can be any integer of your choice (except 0). X must be the same across all your cards and you can change it at any time.
Everyone plays simultaneously to try to get 21 first. At any time a player can "twist" and draw another card from the deck. This could help them, but will make N bigger in the process.
If a player makes 21, they announce it, state their X value and show their working. If they're correct, they win!
Alternatively, if a player can't make 21 but is close, they can call "stick" and state their X value (you may not stick or win with exactly 20). This gives all other players just 1 minute to beat that score. Whoever is closest to 21 at the end of the timer, wins!
Unfortunately, since 21X was only just successfully kickstarted as of 19 October 2022, it won't be available until June or July 2024, which takes it off 2023's shopping list for gift-giving. For now, you can subscribe for pre-order notification at Naylor Games' site to get well ahead of the game when Black Friday 2024 rolls around.
But that still leaves the question of what gift might work for that maths-oriented person you know in 2023, and that's where the Kickstarter site offers useful inspiration. For those pledging support for the project, Naylor Games offered a discounted copy of Marcus du Sautoy's new book, Around the World in Eighty Games: From Tarot to Tic-Tac-Toe, Catan to Chutes and Ladders, a Mathematician Unlocks the Secrets of the World's Greatest Games.
If you're not familiar with du Sautoy, he presented the series A Brief History of Mathematics on the BBC in 2010. The 10 episodes of that series are freely available for download and provides a fantastic overview of who did what and when in maths.
His new book explores the centuries-long connections between maths and games, which makes it almost self-recommending for anyone who enjoys both. We're looking forward to it and also to playing 21X sometime in 2024!
Louis Weisz achieved internet immortality in 2021 when he cooked a chicken by slapping it. Or more accurately, building a slapping machine that converted kinetic energy into enough heat to cook a chicken from repeatedly striking it.
But would that technology work to cook a turkey? In the following less than 22-minute video, he finds out not only if he can but whether the final result is worthy of being eaten as part of a Thanksgiving dinner!
The consensus among his guests? It's tastes like turkey!
Being traditionalists, we'll stick with more familiar turkey cooking methods, but if you go for the slapping method, the IIE team wishes you a Happy Slapsgiving!
From the Inventions in Everything Archives
Here's a sampling of other inventions involving turkeys, unique kitchen gadgets, and devices capable of delivering a slap!
- Solving Crimes with Turkey DNA Evidence
- Invention in Everything: The Truly Boneless Thanksgiving Turkey
- Inventions in Everything: A Pat on the Back
- Inventions in Everything: A Five-in-One Kitchen Multitasker
- Inventions in Everything: Ice Cream Pint Lock
- Inventions in Everything: The Flask from the Future
- Inventions in Everything: Stopping the Refrig-a-raider
- Inventions in Everything: Suction Tube for Reverse Axial Withdrawal
- The Kitchen Unitaskers You Cannot Live Without
- Inventions in Everything: Geothermal Beer Coolers
- Inventions in Everything: The Ultimate Turkey Blind
Labels: technology, thanksgiving
The American Farm Bureau Federation reports the cost of providing a traditional Thanksgiving turkey dinner for 10 people in 2023 is 4.5% lower than it was in 2022. The identical grocery items that cost $64.05 a year ago now cost $61.17 according to the Farm Bureau's annual shopping survey.
But as you'll see in the following chart, the cost of that traditional Thanksgiving dinner is still well elevated above what it was in 2020.
There's a lot of information in the chart showing how prices for the ten items of the AFBF's Thanksgiving dinner shopping list has changed in each year since 2020. We've used clustered columns along its horizontal axis to indicate the annual average price paid for each of the individual items, which are ranked according to their 2021 cost. We've also presented a cumulative cost curve for each year to show how each item adds to the total meal cost that is arrived at on the right-hand side of the chart.
Presenting the data this way lets us see that the increase in the cost of turkey is once again responsible for most of the year-over-year change in the cost of the meal. Here we see the cost of a 16-pound bird declined by 5.6% to $27.35 in 2023. That decline is attributable to the rebound from the negative impact of 2022's avian influenza epidemic on the supply on turkeys during 2022.
Unlike 2022, when only the price of cranberries fell from what they cost the previous year, 2023 saw a larger number of price declines among the items on the AFBF's shopping list. In addition to turkey, the prices for milk, cranberries, pie shells, cubed stuffing, whipping cream, and green peas were lower than their 2022 prices. Altogether, these items saw their prices collectively fall by $3.18.
Meanwhile, the prices of the 1-pound veggie tray, rolls, sweet potatoes, and pumpkin pie mix rose by a combined $0.30. The total net change is a reduction of $2.88, of which the $1.61 decline in the price of a 16-pound turkey is the biggest component, accounting for 56% of the year-over-year difference.
From 2011 through 2020, the cost of a traditional Thanksgiving dinner held steady within a relatively narrow range between $46.90 (2020) and $50.11 (2015). The cost of a traditional Thanksgiving dinner for 10 people remains 30% higher than 2020's level thanks largely to President Biden's inflation.
References
American Farm Bureau Federation. Farm Bureau: Survey Shows Thanksgiving Dinner Cost Up 14%. [Online Article]. 18 November 2021.
American Farm Bureau Federation. Thanksgiving Dinner Cost Survey: 2022 Year to Year Prices. [PDF Document]. 17 November 2022.
American Farm Bureau Federation. Thanksgiving Dinner Cost Relief, But Still High Relative to Recent Years. [Online Article]. 15 November 2023.
Image Credit: Thanksgiving Dinner. Public domain image by U.S. Department of Health and Human Services via U.S. Census Bureau.
Labels: food, inflation, personal finance, thanksgiving
Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:
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