January 13, 2021

The CPI rose 0.4% in December after having risen 0.2% in November.  It rose1.3% in 2020.

Food prices rebounded by 0.3% in December after having fallen 0.1% in November.     In the past year food prices have risen 3.8%.

Energy prices jumped 4.0% in December after having risen 0.4% in November.   The December increase was led by gasoline prices which climbed by 8.4%.  The recent run-up in energy prices appears to be a reflection of the global economy gathering momentum.  However, in the past year energy prices have still declined  7.3% because of the recession early in the year.

The CPI excluding the volatile food and energy prices gained 0.1% in December after having risen 0.2% in November.   In the past year the so-called “core” CPI has risen 1.6%.

While inflation remains relatively well in check for the moment, there is no doubt in our mind that the inflation rate is on the rise primarily because of 25% growth in the money supply in the past year.  Typically, M-2 rises at about a 6.0% pace.  But when the Fed purchased $3.0 trillion of government securities back in the spring of last year money growth soared.  A 25% increase in a year  is unprecedented growth and is going to cause the inflation rate to climb in the months ahead.  But while rapid growth in the money supply presages a pickup in the inflation rate, it is less clear exactly when and by how much the inflation rate will rise.

But we are already seeing signs of inflation beginning to climb.  Home prices have jumped 8.5% in the past year.

Commodity prices are at their highest level in the past five years which is lifting goods prices.

The dollar has been declining which means that the prices of imported goods will begin to climb.

The CPI rose just 1.3% in 2020 while the core rate rose1.6% .  We expect the CPI excluding food and energy is projected to increase 2.5% this year and then increase 3.0% in 2022.

Stephen Slifer

NumberNomics

Charleston, SC