[lunaru]

It bears repeating because this is a common mistake in inflation discussions: a decrease in inflation metrics means price increases are slowing down, it doesn’t mean that prices are going down （that would require a negative CPI print).

Also, this number is year over year, so the decrease just means the price increases between Oct 21 and Oct 22 are not as steep as between Sept 21 to Sept 22, which is not hard to achieve because Sept 21 to Oct 21 had a bigger month over month jump.

The right way to interpret this number is that high prices have plateaued a bit. Yes that means your groceries are going to be x% higher than in 2020. Short of deflation, they always will be.

[matwood]

And to add to your explanation, because inflation jumped so quickly and then slowed we'll eventually hit a YoY number that plummets. If milk is $4/gallon today and still $4/gallon 12 mos. from now, that's 0% YoY inflation.

This will inevitably lead to people saying the numbers are fake because milk used to be $2/gallon.

[throw0101a]

> If milk is $4/gallon today and still $4/gallon 12 mos. from now, that's 0% YoY inflation.

Conversely, if there was a one-time jump in a particular item, it will take a year before it gets 'removed' from the inflation numbers.

Extremely contrived example: if gas/petrol was $1/L in December 2021 (and generally in all of 2021), but $1.20/L in January 2022, then there will be a 20% YoY jump in inflation for the January number comparing Jan 2021 to Jan 2022.

Now if gas stays at $1.20/L in February 2022, it will still register as 20% YoY even though the price has not changed month-to-month. That 20% (YoY) is "stuck" in the system until January 2023 when we're comparing $1.20/L to $1.20/L.

A one-time jump can 'skew' the numbers if all you look at is YoY metrics.

[bitshiftfaced]

Even in the early 80s after huge interest rate hikes, YoY CPI inflation stayed above 2% (until the mid 80s).

Rather than modeling it as "the price increases happened in a short period of time and then went back to normal," I think it's more likely that it happened more spread out and persistently, and perhaps still is going on. It's not going to jump to zero after some given month

[fleddr]

Honestly, I'm with those people.

Your explanation is fully technically correct, but the subsequent messaging that inflation is zero is a matter of not reading the room.

When an important item dramatically rises in price, this can have a massive impact on people. A dramatic drop in purchasing power or even businesses needing to close. It is impactful.

When the price continues to be high, the impact remains. The pain continues, the problem is not solved. The politically smart messaging is to say "we feel and acknowledge your continued pain, this is what we're going to do about it", not "Good news! Inflation is 0%."

Same with the opportunistic messaging of sometimes using MoM or YoY, whichever number looks better. When MoM inflation in October is 15% and 5% in November, you really shouldn't bring this as good news. The situation still got worse in the real world.

[mattferderer]

How to set inflation expectations - "Inflation shoots up like a rocket & floats down like a feather."

[coding123]

It's bullshit because it's an average of everything that no one buys. My grocery bills have doubled since 2020, meaning my CPI was 100% over 3 years. I will not shut up as you and many others are trying to force me into accept it's 10% inflation.

[0x445442]

Especially when their incomes didn’t double.

[Spooky23]

People who lack foundational skills in math are always vulnerable to being worried about witchcraft and conspiracy.

It’s a major reason why society spends so much on education. Stupid people make poor citizens.

[impulser_]

Don't be surprised when politicians use this to their advantage next year.

[olivermarks]

@matwood it is a disaster for working people regardless as wages are not keeping pace with the effects of inflation.

[KptMarchewa]

Month on month numbers are still slightly up.

[Am4TIfIsER0ppos]

If "inflation is transient" when is it going back to 2/gal?

[thomastjeffery]

They effectively said, "The increase went down."

It would have been much clearer for them to say, "The increase has slowed."

[onion2k]

Or clearer still "The increase is smaller than expected."

[laweijfmvo]

This is like the 3rd derivative, right? e.g. we now have a slightly lower rate of acceleration towards the cliff than before?

[germandiago]

Well explained. Idk for english-speaking countries or your country of origin but the average spanish is an absolute illiterate in economy.

These explanations are very necessary so that people develop an intuition of what is going on.

[giantg2]

Many Americans are illiterate on numbers and the economy too. I still remember the classic example that a burger chain released a 1/3 pound burger to compete with another chain's 1/4 pound burger, and many people thought the 1/4 pound was bigger...

Edit: there are some people saying it's a myth, or not a complete picture. Looks like we don't have the data. But my point is that we aren't very good with numbers or economics.

https://www.scientificamerican.com/article/fractions-where-i...

https://www.stlouisfed.org/on-the-economy/2018/september/how...

[lordnacho]

I have a degree in it and I often don't feel that I know anything. For a guy who did a lot of STEM economics is a pretty odd subject in many ways. A mixture of interesting insights, strange models, and a lot of soft talk.

[nashashmi]

Also it is worth mentioning that part of the major reason accounting for inflation is car price. It’s going down now as chip makers produce more and prices go down further.

[onlyrealcuzzo]

It's also going down because it's a debt market and financing is more expensive w/ used car interest rates at 9% instead of 4% and new cars at 5% instead of 0%...

[bryanlarsen]

I expect the number of car sales in the US to go down significantly like it has in Europe. Interest rates are one major factor, but another is the electric transition. Anecdotally I know quite a few people that aren't buying new vehicles right now. They're the kind of people that buy a new car every 10 years or so, and are delaying their purchase or buying used. They realize it's a bad idea to buy a new gas car but aren't yet ready to buy an electric car because they don't understand them yet, they're too expensive, have a massive backlog, or don't come in the style/variant they want.

[nemo44x]

Hopefully that helps with new car pricing. Dealers are still selling well above MSRP.

[alooPotato]

Anyone else feel like this is such a dumb way for the general public to track inflation. Like, a simple line chart with the X axis being time and the Y axis being the price of a basket of goods would be so much clearer

[randomdata]

Is inflation (meaning CPI figures) meant for the general public? It's a useful economic tool, but not very relevant to the average Joe. I would think expansion of cost of living is what the general public is interested in, and for that they have to track their spending, and can do so in any way they see fit.

[boppo1]

That's why we don't use it.

[danielmarkbruce]

This isn't right. It could in fact mean prices are going down.

Had we just reported a month on month -0.4% instead of 0.4%, the yoy rate would have been reported as 6.9%. A headline of 6.9% would mean prices are actually going down.

[meragrin_]

Anything positive YoY means prices have gone up overall over the last year. For prices to have gone down in general over the last year, the YoY would have to be negative. A headline of 6.9% would mean prices have gone up.

[lottin]

Year-over-year inflation doesn't tell us anything about whether prices are going up or down right now.

[giantg2]

No historical data is going to tell us the future. But it can give us an idea of the trend, which is useful since in a large system like the economy the trend tends to change relatively slowly as compared to individual compentents.

[msoad]

Inflation over the last year was 7.7% - if the October rate holds for a year, it will be under half of the last years inflation rate coming in at 3.6%

That’s the number that matters in a forward looking instrument like the market

[la64710]

Which businessman in their right mind will decrease the price of their products because of cost decrease? Not unless there is intense competition. Because of that for large scale monopoly business like commodities once the prices go up it may not come down again.

[Green_man]

I may be missing something, but if there is no competitive pressure/monopolistic market, why would these businesses need the excuse of inflation/cost increases to increase their prices? Wouldn't we expect prices to have gone up before inflation?

Or is this a specific criticism of a regulatory blind spot for reigning in market power? Monopolies can get away with price increases now, but they wouldn't normally?

[jliptzin]

If you sell commodities that is literally the opposite of a monopoly

[rzimmerman]

Yes the YoY number is useful for getting rid of seasonal variations. The monthly CPI is also noisy. But when there’s a big spike over a few months (like we had 8-16 months ago) YoY won’t go down meaningfully for at least a year.

This is actually great (if noisy) news. 2 months of 0.4% CPI increase is equivalent to 5% yearly inflation. But the YoY is still high because it was much worse 8-12 months ago.

I hadn’t even considered that people will think low numbers are a lie because prices don’t go down. But of course (sadly) you’re right.

[lupire]

The seasonality aspect is a distraction when inflation is so volatile due to all the pandemic craziness.

[ajross]

> The right way to interpret this number is that high prices have plateaued a bit.

This part is true.

> that means your groceries are going to be x% higher than in 2020

But this part jumps right back into the much bigger fallacy that inflation represents a change in value and not price! Sure, groceries are higher in price, just like your assets are higher in value (on average) and your wages are higher (on average).

But in any case, your notion that inflation isn't instantaneously halted is a little spun. In fact month-to-month CPI change for October is 0.4%, which corresponds to about 4.9% per year. That's higher than we've seen for most of the last decade, but not a number most people would consider "high" in the sense of "disruptive to economic activity".

[anyonecancode]

I think of it like the accelerator pedal on a car. A decline in inflation means the foot has eased up on the accelerator some, but the car is definitely still moving forward.

[WanderPanda]

You mean a negative CPI growth / CPI decline, right? With a negative CPI stuff would be free + we would be getting money on top (on average) :D

I think the best way to understand it is to just look at the index itself [1] and not the first or second derivative.

[1] https://tradingeconomics.com/united-states/consumer-price-in...

[kelnos]

Sure, but this is still exactly what we want to see. If the target is 2%, YoY metrics moving in that direction is a positive step.

The only thing we can hope for is that, as inflation numbers continue dropping back toward "normal", wage increases will eventually catch up and make those already-higher prices less difficult to swallow. Of course, it never works out that neatly.

[amanj41]

Couldn't some goods in the basket be slightly negative while others are positive? For example if rent went down relative to last year's baseline but groceries, gas, etc were all very much up.

[citilife]

The number is largely manipulated anyway. It's more complex than even this because you have to account for price elasticity. They are giving oil a very wide fluctuation, for instance.

I've been tracking my expenses since 2015 and they're up around ~50% since then, for effectively the same food (eggs, bread, meat, etc). I eat ~2800-3000 calories per day (which I also track) and that's been consistent.

According to BLS it should be up only 27%, but everyone knows that's just not true. Remember ~1 year ago when the administration was calling prices "transitory", that means they're claiming a larger elasticity in prices so inflation doesn't look bad because they believe they'll come back down (soon).

[danielmarkbruce]

You could just say: CPI is up 0.4% month-over-month. It gets reported.

[sonthonax]

As a general consumer, the slowdown in the erosion of my earning power is welcome news. My gamma hedging hedging costs have never been lower.

[Victerius]

For the mathematically inclined among us, dp/dt is still positive. It's d^2p/dt^2 that is slightly negative.

[contravariant]

Though the mathematically inclined should also know that we're not looking at dp/dt, we're looking at p(t) - p(t-T).

The difference is important, especially because we're looking at a yearly increase every month. The derivative of the annual inflation is not d^2p/dt^2 but (dp(t)/dt - dp(t-T)/dt).

[queuebert]

Anyone who's ever had to numerically estimate second and higher derivatives from noisy data can appreciate how difficult the Fed's job is.

[redox99]

Not really.

It means CPI_oct22 - CPI_oct21 < CPI_sep22 - CPI_sep21

d^2p/dt^2 isn't necessarily negative.

[compumike]

For the mathematically inclined, here is a graph of 1/p over the past year:

https://totalrealreturns.com/s/USDOLLAR?start=2021-11-10&end...

or over a longer time period: https://totalrealreturns.com/s/USDOLLAR

(this site is my side project)

If "p" is the relative price level index (CPI-U in this case), then "1/p" represents the relative purchasing power of a single dollar over time -- explained on homepage in more detail.

[fakethenews2022]

Many words for something that can be explained by a single cumulative CPI graph.

[fakethenews2022]

Of course it probably needs a second graph under it of 2% cumulative CPI for comparison.

[Ar-Curunir]

I.e. the rate of price increase has slowed, not the price increase itself

[maratc]

Prices are still increasing, and they are still increasing fast. It's just that recently, they increased even faster than now.

[FollowingTheDao]

And I find it hysterical that the 10 year Bond dropped 4% because of this. They think this is the peak, as in the Fed will stop raising interest rates and inflation will only get lower from here.

A good time to but the 10 year Bond IMHO.

[datalopers]

Why would you suggest buying a bond on the exact day that yields just plummeted.