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ne month before that peak the number was in the normal range or close to it and for six or seven months before that the numbers were low before that only one high one and before that a month of low inflation and three months below zero three months of falling prices this takes us back to march 2020 almost all the numbers were low and the one high july 2020 was more or less counterbalanced by the low of april 2020 so how did blue inflation skyrocket in april 2021 yes may and june also show high inflation rates but may and june didn t happen yet when they figured the april numbers i want to see how the changes are related how a change in the monthly number influences the course of the from year ago inflation rate to make it easier to see the effects of a change i made some dummy data that always has the same monthly inflation rate it turns out that a unchanging inflation rate of 0 165 per month results in 2 annual inflation i went with that because the 2 annual rate was the target rate for a long time still is maybe the colors don t match the fred graph but here s the graph of unchanging inflation graph 2 dummy data showing a constant monthly inflation rate the numbers across the bottom represent months the monthly inflation numbers are shown in blue and the from year ago numbers in excel s uninspiring orange the orange line starts late because i waited until there was 12 months of blue data 13 months actually so the first month can be replaced by the 13th month january to january or whatever after that late start orange runs at 2 annual now let me modify the dummy data after month 20 i will replace three numbers with the three below zero values from graph 1 march april and may 2020 the covid recession appears as a vertical bar on that graph for reference the recession started on february 1 and ended on april 1 the modified excel graph with the blue line showing the three month low graph 3 constant inflation except for the low of march april may 2020 according to the fred data the three low values are 0 021 0 369 and 0 075 add the three together you get 0 465 that s a decline of less than half a percentage point but the orange line shows a full percentage point decline how did that happen i dunno but that s a question for another time the question that must be answered now is this what s going on with the graph why does the blue line return immediately to the 0 165 level while the orange line runs low for so long and then why does the orange line come back up when it does just like the red line on graph 1 the blue on 3 has just three points below zero i even used the same numbers and after those three points the blue goes back to the constant 0 165 monthly inflation rate so that s the blue line the orange line measures a 12 month change after the 3 low values visible on the blue line have come into the orange calculation the other 9 values in that calculation can only be some of the 0 165 numbers that are everywhere else on the blue line as the months go by the low values gradually move from newly entered to ready come out of the 12 values then over the next three months those lows come out of the calculation and the line works its way back up to the 2 0 level but if by some chance something pushes the monthly inflation number up just as the three monthly lows are coming out of the from year ago inflation number that number will not just go back to normal it will go high as the low number comes out and the high number goes in at the same time in the real world and on graph 1 the unusual low of april 2020 was coming out of the from year ago calculation just as the unusual high of april 2021 was being counted in if the timing was different we might not have had a high from year ago number for april 2021 but the timing wasn t different again in may the low of 2020 came out of the from year ago inflation just as the high of may 2021 was being counted in as a result we got two fluke months in a row where from year ago inflation blue on graph 1 shot up a lot while the monthly numbers red did not increase enough to explain the large increase in the from year ago number this explanation doesn t work so well for june because the 2020 number wasn t so low maybe people saw the high inflation of april and may and decided to get on the bandwagon and raise their prices dunno now i m adding the highs from graph 1 to the excel graph april may and june of 2021 graph 4 constant inflation except for the 2020 low and the 2021 high i cut a few years off the start of the graph and added a few at the end to make room for the return to normal a year after the 2021 high month 34 on this graph is april 2021 the first of three highs that puts us in october at month 40 so we re only about half done with this high level of from year ago inflation of course it depends on how reality turns out but if you go by graph 1 we are already three months past the monthly red highs and well into the lets make things look bad for no reason stage we ll see how it goes oh by the way yesterday s post is online again unchanged maybe i ll sleep better tonight at october 21 2021 no comments email this blogthis share to x share to facebook share to pinterest labels the 2021 inflation panic wednesday october 20 2021 inflation show and tell the 17 october 2021 meet the press transcript https www nbcnews com meet the press news meet press october 17 2021 n1281714 use the graphs to find the stuff i talk about in the post it ll be worth your time some months back when inflation came into the news again i read an article by j w mason mike konczal and lauren melodia the article pointed out that inflation figures are very often reported as percent change from year ago values the article said that a year ago prices were down because of the pandemic and our response shutting down the economy as i recall the article seemed to suggest that some higher price increases should be expected to offset the lower price increases we saw a year ago sort of a balancing out effect i didn t understand that at the time but i didn t forget it and i didn t reject it outright and i do love to give examples of not jumping to conclusions on economic issues and yes my mind does tend to wander but the other thing the inflation is reported as percent change from year ago thing that is a very important observation here in red and blue are two measures of the consumer price index the dots are monthly each dot represents the change in the rate of inflation from a year before there is a lot of overlap adjacent dots count a lot of the same inflation graph 1 two measures cpi inflation showing percent change from year ago i m gonna say the last five dots of each line show inflation running high and before that the last one blue or two red show it rising before that the dots show inflation normal or low notice that both the red and blue lines run low for about a year from spring of 2020 to spring of 2021 and now that inflation has gone high as konczal et al said we can expect it to stay high for about a year even if price increases drop back to what they were in 2020 why because as one new monthly low is added in to the change from year ago the oldest monthly low drops out of the calculation once a monthly value comes into the calculation it stays in the calculation for a year so inflation as shown here percent change from year ago can change little just as we now see little change since june 2021 that big increase of march april may 2021 i ll get to that in the spring of 2022 those rising numbers will start to drop out of the calculation first march 2021 then april and so forth and at that point we may start to see a decline in the from year ago rate now i m talking monthly numbers while we look at a from year ago graph so let me show you the graph of monthlies same fred data sets but the vertical axis label is different and the numbers are different graph 2 same two inflation datasets this time showing percent change from previous month note first of all that the y axis values are much smaller on graph 2 on graph 1 normal inflation see 2019 was around 2 and the high numbers were around 4 or 5 on 2 normal inflation is around 0 2 and the high numbers around 0 8 if you take a year of normal months at 0 2 inflation and figure each month as 0 2 on top of what came before you get inflation a little over 2 for the year all told so the numbers seem roughly right there is surely more error in my eyeball estimates than in the fred data next look at the sharp drop in the monthly numbers during the brief recession of early 2020 february marks the start of that recession and april marks the end by june the number has bounced back up to high normal similar to march and april 2019 and after that the monthlies fall back to their normal range and stay there from august 2020 to february 2021 during those same months the first graph shows inflation running not normal but low why because on the first graph the low of march 2020 is included in the from year ago number until march of 2021 the low of april 2020 is in the from year ago number until april 2021 and the low of may 2020 is in the commonly reported number until may 2021 beginning in march of 2021 the three lowest numbers on graph 2 started dropping out of the graph 1 calculation beginning in april the three highest numbers on graph 2 started being figured in the result visible on graph 1 was a big increase after march 2021 this is exactly the effect described by konczal mason and melodia the percent change from year ago measure of inflation was pushed unusually high because three unusually low numbers became more than a year old i m not trying to make excuses no inflation is good inflation but figuring from year ago inflation is a good technique when you have inflation for several years running as we had in the 1970s figuring inflation from year ago is not a good technique when you have big changes for short periods of time as we had with the very brief covid recession and since that time the inflation we actually got in april may and june of 2021 had nothing to do with the inflation of a year earlier the from year ago inflation reported for those months of 2021 was an artificially high number because the numbers dropping out of the calculation were so extremely low and since july the from year ago inflation the commonly reported inflation has been running high because there were high numbers in april may and june that s the problem the john podhoretz problem read on now if you got what i said so far i can get to the point on sunday 17 october on meet the press chuck todd said a post covid supply chain back up has spread across the globe causing cargo ship traffic jams slowing delivery of goods and yes driving up costs in fact those higher costs have helped feed a rise in prices all over the map leading to the sharpest rise in inflation in 13 years he didn t say which measure of inflation but they re all in the same neighborhood by the way that supply chain story is some good bullshit isn t it during the show john podhoretz said i d just say speaking of the economy though this is all happening at a time of rising and apparently non transitory inflation non transitory inflation how the hell does he know that look at the second graph two months after june 2021 inflation was back in its normal range that was august september was normal or just on the high side of normal with a little luck this inflation scare could all be over by next month non transitory he says again podhoretz and we could be looking at inflation continuing to go up people are in a mindless panic over what is so far mostly normal or near normal inflation or maybe they re not in a panic maybe they re trying to create a panic or maybe they just never thought about from year ago inflation versus the actual monthly numbers maybe they never considered whether the method that is very useful in a time of long term inflation may be very flawed in a time of uncomfortably large but surprisingly brief upward and downward changes in the rate of inflation the worst thing would be for media people reporting their concern as though it were news to create among consumers a self fulfilling concern that drives the rate of inflation higher and makes high inflation more long lasting at october 20 2021 1 comment email this blogthis share to x share to facebook share to pinterest labels the 2021 inflation panic tuesday october 19 2021 two roads diverged and diverged and diverge again an expanded version of yesterday s first graph graph 1 slide the scrollbar right to see more or just click the graph you may be more familiar with the data in this form graph 2 the debt to gdp ratio at october 19 2021 no comments email this blogthis share to x share to facebook share to pinterest monday october 18 2021 indebtedness has since 1980 jumped not every quotable line is poetic on 16 october i rejected richard vague s view that a debt surge resulted in increase in the debt to gdp ratio today i have another one benjamin friedman from 1986 the combined indebtedness of both government and private sector borrowers has since 1980 jumped far out of proportion with nonfinancial economic activity indebtedness has jumped friedman says that means debt surge 1 friedman is careful to point out that this increase in debt is relative to gnp 2 he says it in the part of the quoted sentence nonfinancial debt had shown considerable stability in relation to the economy s overall growth before 1980 he says it again in the same sentence in the words you read above debt jumped far out of proportion with nonfinancial economic activity since 1980 that s two cautions in one sentence caution me all you want friedman i still challenge you to correctly state the cause of increase in the debt relative to gdp ratio in the 80s you make it sound like debt growth was the problem it wasn t oh yes debt growth most certainly is a problem the problem i d say even before the 1980s but debt growth was not the cause of increase in debt to gdp nor of debt to gnp the increase that you were writing about in 1986 debt growth was not the cause of that increase no sir i ll give you the housing bubble debt increase and spot you the covid pandemic debt increase but debt increase was not the cause of increase in the debt to gdp ratio in the 1980s suppose we look at nonfinancial debt tcmdodns and gdp gdpa in billions of dollars from 1970 to 1995 this puts the increase in debt to gdp 1981 to 1986 give or take centered on the graph the debt number by default is quarterly end of period i m using annual end of period since our topic is the growth of debt and gdp make the vertical axis a log scale i love the way the one line parallels the other until it doesn t and then again it does graph 1 two roads diverged in a yellow wood note the little bump at 1981 in the lower line that s when nominal gdp started slowing in response to anti inflation policy i brought the data into excel added...