Instantaneous Core Inflation

Four out of five measures down:

Figure 1: Instantaneous inflation for core CPI (blue), chained core CPI (tan), supercore CPI (pink), PPI core (red), and PCE core (green), per Eeckhout (2023), T=12, a=4. June PCE core is nowcast as of 7/23. Source: BLS, BEA, Cleveland Fed, and author’s calculations.

While instantaneous core PPI rose in June, a regression of core CPI on lagged core PPI and lagged core CPI (all instantaneous) over the data shown above yields a statistically insignificant coefficient on on lagged PPI. This is also true using m/m inflation.

Addendum, 7/24, 11am Pacific:

See also this post for discussion of formal econometric analyses of whether PPI leads CPI.

25 thoughts on “Instantaneous Core Inflation”

  1. pgl

    Doesn’t the FED put a lot of weight on PCE? Based on this information, it seems inflation has fallen below the 2% target.

    1. Macroduck

      Working backward from behavior to definition:

      Powell told the NY Economics Club that the Fed won’t wait to hit target before cutting rates – which is in keeping with past practice. The Fed isn’t cutting, ergo inflation isn’t at target.

      What measure is the Committee looking at? Not instantaneous core PCE or CPI. Also, apparently not core PCE over six months, which is at 2.4%, ’cause c’mon, that’s gotta qualify as “before inflation reaches target”. How about y/y core PCE? At 3.1%, not close enough.

      So I’m gonna guess they are telling themselves to lean on y/y measures.

      Here’s the thing. From long-established “how we do things” chit-chat, a couple of meetings one way or another doesn’t matter in the Fed’s way of thinking. Republicans are going to rain implications down on the Fed if it cuts before November, no matter whether they wait for the priced-in September meeting or cut on the 31st. But after the election, I’d imagine Republicans would look for ways to mess with the Fed if it decides on a surprise July hike. And if Trump wins? Yikes.

      So no instantaneous inflation or 6-month annualized inflation. Good old y/y will have to do, I suspect.

    2. joseph

      Members of the FOMC have stated that headline, not core, PCE is their inflation target. And year over year to smooth fluctuations.

      How close headline PCE has to get to the 2% target before cutting rates is a different issue but at least we know which metric they are looking at as their “official” target.

      1. Macroduck

        I’m aware of what FOMC members have said. Core PCE is, however, less volatile, so a better measure of underlying trend.

  2. pgl

    Internet warns JD Vance after video resurfaces implying Kamala Harris is childless cat lady

    https://www.msn.com/en-us/news/politics/internet-warns-jd-vance-after-video-resurfaces-implying-kamala-harris-is-childless-cat-lady/ar-BB1qv7kA?ocid=msedgdhp&pc=U531&cvid=93a1a540f404419e900032f05ff5640e&ei=19

    There’s a wee problem with Vance’s attack on Harris. She and her husband are raising two children.

    Serious question folks – I once suggested Bruce Hall is the dumbest person on the planet. But this Vance dude is really stupid too. So who is the dumber of the two?

    Now before you answer that – check out Bruce’s latest which totally ignore this post as well as Dr. Chinn’s post on the WEO report.

    Yea I know this is one difficult choice!

    1. Ithaqua

      I had picked Steven Kopits as my bet for stupidest commenter of the year some months ago, but I’m getting nervous now…

  3. pgl

    This dude treats the Constitution as a joke:

    Republican Rep. Andy Ogles has filed articles of impeachment of Vice President Kamala Harris over her handling of the southern border and for her insistence that Joe Biden was fit for the top of the Democratic ticket. Harris has faced GOP attacks from all sides since becoming the presumptive Democratic nominee for president. Republicans have accused her of ‘covering up’ the president’s cognitive decline and demanded she invoke the 25th Amendment to remove Biden. The first article of impeachment, ‘willful refusal to uphold the immigration laws,’ stems from her alleged ‘inaction’ with border security and immigration law as ‘border czar.’ The second article of impeachment, ‘breach of public trust,’ alleges that Harris ‘knowingly misled’ the public and Congress about ‘the physical and cognitive well-being’ of Biden.

    All lies, no respect for the republic. MAGA.

    1. Macroduck

      Ogles has a primary challenger, Courtney Johnston, who is running endless TV ads accusing Ogles of being an ineffective do-nothing. He is of course an ineffective do-nothing, since he’s a freshman Congressman in a do-nothing Congress. Buy she’s well-spoken, young, blonde and all over TV, so never mind the reality of the situation.

      I can’t find any polling to indicate how close the primary is. Anyhow, Ogles has now “done something”, and it’s the kind of “something” that sells among Tennessee primary voters.

      Hope she sinks the guy, just because of who he is and because Trump has endorsed him.

  4. pgl

    You may have heard that Elon Musk will be giving $45 million a month to Trump-Vance. Musk said this ain’t happening as he does not ‘subscribe to cult of personality’’,

    Oh my – how is Trump going to pay off his lawyers?

    1. joseph

      That’s rather ironic since Musk promotes his own cult of personality. I guess what he means is that he doesn’t like competing cults.

  5. pgl

    Bruce Hall only pretends he cares about the national debt but he supports Trump who has run this up considerably and plans to do so even more. From a Washington Post story that Kelly Anne Conway has ordered MAGA moron Brucie not to read:
    https://www.washingtonpost.com/opinions/2024/07/23/national-debt-fix-peterson-foundation/

    ‘The 2012 Republican platform mentioned the national debt 15 times, but this year’s edition did so not at all. As for the Democrats, their 2024 platform calls for cutting deficits by $3 trillion over the next decade, but the party’s actions tell another story. The Biden years have seen the addition of more than $4 trillion to the debt so far. President Donald Trump approved more than $8 trillion in his term.’

    Of course that is the past and conservative Peter Peterson’s foundation has a few ideas including getting rid of these 2017 tax cuts. Of course Brucie’s hero Donald Trump wants to further tax cuts for the rich.

    1. Macroduck

      Many Haley supporters were not so much crazy for Haley as unwilling to vote for Trump. After all, what claim does Haley have to support, other than being a Republican who isn’t Trump? She’s now J.D. Vance in a skirt – once utterly opposed to Trump and now an utter suck-up.

      Haley has made herself irrelevant for now. Let’s hope she stays that way.

  8. pgl

    Economist Krugman fact-checks Trump’s claim that Biden job gains went to ‘illegal immigrants’
    https://www.msn.com/en-us/news/politics/economist-krugman-fact-checks-trump-s-claim-that-biden-job-gains-went-to-illegal-immigrants/ar-BB1quSlH?ocid=msedgdhp&pc=U531&cvid=a3a50f332d1148ccbd28d7c504d190cc&ei=12

    “Since President Biden took office,” Krugman explains, “the United States has gained 15.7 million jobs. Trump, however, has been dismissing the good news on employment, claiming that all the job gains are going to illegal immigrants.” The economist/columnist goes on to lay out some data.

    “The question…. is whether the jobs immigrants have taken would have gone to native-born workers if immigration had been lower,” Krugman writes. “Well, if immigrants were stealing our jobs, we’d expect to see a sharp rise in unemployment among the native-born. We don’t.”
    Krugman adds, “The unemployment rate among native-born workers is near a historic low.” The economist adds that there is no evidence showing that immigrants cause wages to go down. “Most labor economists now believe that immigrants don’t do much head-to-head competition with native-born workers; they bring different skills and take different jobs,” Krugman argues. “And the past few years, with elevated immigration, have also been an era of exceptional growth in wages for the worst paid. So, none of these negative claims about the effects of immigration hold up.

  9. Macroduck

    Menzie recently posted a look at Thorsten Slok’s wrap-up of very-high-frequency economic indicators, which show little sign of weakness:

    https://econbrowser.com/archives/2024/07/wheres-the-slowdown

    Among those indicators are jobless claims, which have the longest history of any series in this set. It happens that both initial and continuing jobless claims track the U3 unemployment rate pretty closely, and the U3 rate has served as a very reliable coincident indicator of recession, as identified by Claudia Sahm. Currently, there are questions about the reliability of Sahm-s rule because of the effect of immigration on the U3 rate.

    How fortunate that we can use jobless claims as a check on the U3 rate. Here’s a picture of the U3 rate and continuing jobless claims:

    https://fred.stlouisfed.org/graph/?g=1qx49

    Notice that, while continuing claims have risen in recent months, they appear to have flattened out lately, and a gap has opened between continuing claims and U3.

    Here’s a truncated* version of U3 and initial jobless claims:

    https://fred.stlouisfed.org/graph/?g=1qx57

    Here, too, a recent gap is apparent. Jobless claims data seem to agree with Sahm’s own suggestion – her rule may go astray this time because of data distortions.

    *Truncated for clarity. Mess with the settings if you’re curious.

  10. pgl

    MAGA Rages That Kamala Harris Is A Threat To Plastic Straws
    https://www.msn.com/en-us/news/politics/maga-rages-that-kamala-harris-is-a-threat-to-plastic-straws/ar-BB1qqvDV?ocid=BingNewsSerp

    When I saw this title I wondered if Sean Hannity was interviewing Bruce Hall.

    As it became clear on Sunday that Vice President Kamala Harris is the front-runner to replace President Joe Biden as the 2024 Democratic presidential nominee, pro-Donald Trump conservatives went on TV to fiercely condemn her position on sipping devices.

    “I mean, heck, she wants to get rid of plastic straws, for goodness sake,” Jason Miller, a senior adviser to former President Donald Trump’s campaign.

    The end of civilization as we know it. Oh my!

  11. Richard Kasmin

    How is it possible that lagged PPI is insignificant? Is it insignificant when you run it without the autoregressive terms?
    I am a but skeptical about the value of this instantaneous measure in general — it’s just run with kernel density weights, correct?

    1. Menzie Chinn Post author

      Richard Kasmin: Try it yourself! The data are all available. Regression m/m CPI on PPI alone over indicated sample, adj-R2 = 0.06, coeff sig at 10%. Add lagged CPI, PPI coefficient is not significant.

      As for instantaneous measure, yes, it’s just using kernel density weights. Of course, a little less arbitrary than y/y…

      1. Richard Kasmin

        Thanks Menzie. Looking at the data, it does seem the PPI remains much more volatile than the CPI — it might need some smoothing, so I’ll look at that.

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