September’s CPI showed continued signs of moderate broad inflation with sizable gains from the energy sector.  Headline inflation came in at 3.9% while core inflation was flat at 2%.   That headline figure might sound high, but bear in mind that headline inflation has averaged 4% in the post WW2 era.  Core inflation has also averaged 4% so from this perspective we’re actually still running well below average.

The primary cause of the price inflation is the energy sector.   Headline minus energy came in at just 2.4% versus last year so it’s clear that the continually high energy prices are having a broad impact.  This is alarming given the general weakness in the global economy.  Energy prices just refuse to correct substantially.  While international supply shocks and global demand are the obvious drivers, I think it would be terribly naive of the Federal Reserve to assume that their policies in recent years haven’t contributed to energy price shocks.  And with core CPI running at the top of their range I have to think that this report has many inside the Fed feeling awfully uncomfortable about their options.  This sort of CPI data does not bode well for future policy options as the Fed has to be wondering if they aren’t behind the curve.

My housing adjusted CPI came in at 2.2% which is a bit higher than the core report.  All in all, the risk of high energy prices remains alarming, but general price inflation remains muted outside of this segment.  I hope policymakers understand the potential risks associated with an environment such as this one.  A policy such as open ended QE via NGDP targeting has the potential to be a total disaster for the cost push energy story…..


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • JWG

    At 4% CPI per year, prices double every 18 years. Are incomes in the USA doubling every 18 years? If these CPI numbers persist given stagnant or declining US personal incomes, they are a slow motion disaster for the average person’s standard of living.

  • Different Chris


    But what is the liklihood that we experience 4% YoY CPI increase for 18 consequtive years? Per the graph it looks like we just dug ourselves out of a deflationary hole.


    Best regards

  • Wulfram

    Inflation is outpacing GDP and income growth, so in real terms the economic output is contracting.

    Remember, numbers like GDP and CPI are just that. They don’t tell us if people are hopeful about the future, if they can provide for their family, or how secure they feel.

    In these fuzzy metrics, I would say we’re doing pretty poorly.

  • ES

    The “good” news as real income decline due to inflation rising much faster than incomes we are becoming so much more competetive within global markets. Anthoer 10 years and our standard of living will be low enough to maek manufacturing and production in the US profitable again. Financial sector will starve by then due to lack of other people wealth to skim ( notice all the layoffs at the banks). Then US prosperity building can start from a new base.

  • Cullen Roche

    Yes, it’s not a good time for our stds of living. That’s the downside of slow growth. This has been occurring for about 10 years. But don’t be fooled by the inflationistas. I just finished some serious inflation work and we’re very likely to see disinflation again next year. In fact, by the end of Q1 we could be back close to 1% core CPI. Just enough to get the Fed back in the QE game…..

  • adsanalytics

    Interestingly, though both PPI and CPI have been creeping higher, the market views of inflation, as measured by inflation swaps, have been moving lower.

    Though the market doesn’t always get it right, arguably it offers a more forward-looking measure of inflation rather than the actual price indices.

    Clearly, the recent sell-off in risky assets have been on the minds of investors – if this most recent bout of volatility leads companies to lower capex and employment, recent price rises may flatten out or even reverse.


  • Dimitry

    GE CEO Jeff Immelt during his interview on 60 minutes stated that it is become cheaper to hire workers in U.S. due to the wage inflation in China and India. GE opened new factory in Mississippi and they had 50 applicants for each position paying 13 USD and hour .

  • Cullen Roche

    Wait til Q1 next year when the oil price jump from last February begins to hit the YoY figures. That’s when we’ll see headline and core inflation drop back to low levels….

  • Alex

    Cullen, I totally agree with your inflation outlook: we are in a temporary blip that will fade going into Q1, but any QE post Q1 of next year will feed back into energy and the rest of the commodities complex, which in turn will strain the inflation numbers on a temporary basis…how long is this game viable for?? the QE damage is already too heavy on the economy, for it to withstand a third round…

  • Winston


    Is there something in MMT theory and thinking which explains why federal and private debt has escalated so much in the last thirty years while CPI measured inflation has averaged only about 3% in this period.

    And perhaps also why the Federal Debt was only 30% of GDP in 1979, 1980 and 1981, when inflation was in double digits for those three years, and now with the federal debt at 100% of GDP and climbing, inflation remains under 3%.

    Very curious about this.

  • Wulfram

    If I understand correctly, it’s because most of the dollars we’ve ended up creating went across the ocean and presumably are buried in vaults in China, or exist as deposits in mainframes. In short, since we import tons of stuff from China, we’ve exported inflation to compensate.

  • JWG

    Different Chris, the answer comes from TPC’s article” “headline inflation has averaged 4% in the post WW2 era”. 1946 to 2011 is 65 years. It looks to me like 18 more years of 4% inflation is a lock.

  • JWG

    If those dollars held overseas ever get repatriated to the US real economy, look out. I wonder if the Chinese ever think about forming a syndicate to buy US tangible assets that are not national security-sensitive. They could buy an awful lot of apartment buildings and houses with two trillion dollars. China as America’s landlord with the world’s largest REIT; it’s an interesting thought.

  • hangemhi

    China bailing out American housing – gets our consumers out of debt. Works for me. Vegas, Phoenix, Orlando – have at it.

  • Jake

    Here’s my guess:
    US send money to China (deflationary).
    US private sector lose jobs (deflationary).
    China send money back to U.S. via Treasuries (inflationary).
    US government and related jobs expand to consume the money China loans back (inflationary).

    If above is true, it makes a good case why higher taxes aren’t necessary. Our incomes we send to China, end up going back to the US government, then redistributed.

  • Different Chris


    Always appreciate your comments.


  • Winston

    Wulfram, JWG & Jake

    Of the now close to $15 trillion in federal debt, about $10 trillion is held in the US and only about $5 trillion held by foreigners.

    The breakdown of foreign holders is as follows, with China only holding about $1.1 trillion or about 7%.

    However, China is certainly a big factor behind the low inflation of the last thirty years, because of all the cheaper goods we buy from China. This had and has the twofold effect of lowing the wage component cost of these goods and also served to depress wages in the US.

    But what I’m trying to understand is how MMT theory and thinking explains from its perspective how and why inflation has remained flat over the past thirty years while the federal debt climbed dramatically from 30% of GDP to currently 100%. But perhaps this does not fit into the MMT paradigm.

  • freemarketeer

    I’m also looking forward to a response to this, but I’m assuming the answer lies in the current account deficit?

  • Peter D

    Winston, did you see my reply from the other thread?
    Inflation is too complex to be attributable to just one or two factors.

  • Winston

    Peter D, yes,thanks, I saw and replied to your helpful response.

    I’m just starting to catch on to how these conversation threads work.

    So hopefully I will no longer be repeating the same thought/concern at the end of different posts trying to get a response.

  • sfamc2

    Compare today’s prices to those of 1980. Compare
    the debt level of today, to the level in 1980. Those numbers will answer your question.

  • Not Anonymous

    ” A policy such as open ended QE via NGDP targeting has the potential to be a total disaster for the cost push energy story…”

    What is this that you speak of? And what is all this talk about NGDP? And why does the cow jump over the moon?