The Rising Influence of Rising Affluence

[santafe2]

We should first define which inflation index we're referring to. I always use core CPI as the 'all items index' includes energy and energy 'inflation' is up 30% YoY, (per BLS). The all items index also includes food which seems nonsensical to me but that's a different topic. Energy is the root cause of much of our current core CPI inflation.

I also don't focus on PPI because not all of that inflation flows down to the consumer. PPI should also not be ignored however as we know it's quite high and we know that over time at least a portion of those costs will flow into core CPI.

As for core CPI, one should focus on YoY and monthly. While YoY is important those numbers are far in the rear view mirror. They're important because they're a good measure of lost buying power, especially for those on a fixed income but they're not important if one is trying to understand the recent trend.

Month to month is important because each new month of core CPI replaces its corresponding month from a year ago. The new monthly report is just as important within this context as the actual new month inflation number. Both numbers will have been seasonally adjusted.