Sunday, March 16, 2014

Consumer Price Index Details

The following chart shows the natural log of the consumer price index for services (in black), the consumer price index for nondurable goods (in blue), and the consumer price index for durable goods (in green). When using natural logs, constant exponential growth is seen as a straight line.

Click to enlarge.

I have added three trend lines.

In blue, we have nondurable goods (think food, gasoline, and clothing to name but three). That's pretty much been growing at a constant exponential pace since the end of the 1970s.

In black, we have services. That's not growing at a constant pace. It's definitely slowing down at a parabolically predictable pace, perhaps partly due to the relentless rise in nondurable goods and partly due to falling inflation in general. If current trends continue, it will peak in 2033 (19 years from now). Then what?

In green, we have durable goods. That's definitely not growing at a constant pace. What growth? Hello expanding factory automation and the outsourcing of manufacturing to China.

Let's sum this up.

The constant growth in the blue line is not good for the poor. If that's the growth engine of our long-term future, then we're going to need to expand the food stamp program considerably. Big shocker.

The falling growth rate in the black line is not good for the United States. If pricing power is dwindling for services, then that does not bode well for our service economy. Since services make up such a large part of our economy, this is the deflationary weak link for us, much to the dismay of this country's many service workers.

The falling growth rate in the green line is definitely not good for China. Ouch. No wonder they've taken to building ghost cities to fill in the gap. Good luck on that plan long-term.

And lastly, the Fed targets a constant inflation rate of roughly 2%. Maybe it can achieve it, maybe it can't. Some seem to think hyperinflation will soon be upon us. I am in a decidedly different camp. In any event, what good does 2% inflation actually do when one looks at the details?

The Fed has no power to save us from these details. They use a blunt hammer to decide what inflation should do, not a surgical scalpel. And on that note...

The blunt hammering will continue until morale improves!

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart


Stagflationary Mark said...

Here's what it would take for me to be more optimistic about the long-term future.

Let's see that blue line turn down because Mr. Fusion (or its equal) was invented.

Barring that, I'm a permabear.

CP said...


I think you'll like this:


Troy said...

clothing's been flat for 20 years.

bought a new pair of New Balances to replace my 2010 edition. Same model so I should compared them but they certainly feel cheaper.

Kohls had a 30% sale plus 2 $10 discounts so I got them for $35, about the price I paid for Nike Bruins in the 1980s, which was before China's teeming masses became our goods supplier.

(ah, made in Indonesia I see)

2:1 trade imbalance with them.

CP said...

Some good comments:

Stagflationary Mark said...


Yes! Any inflation will do (us in)! ;)

Stagflationary Mark said...


I actually scored big hoarding Gold Toe socks a few years ago.

WalMart started selling them and then they stopped. I loaded up during the window of opportunity! So much cheaper than where I once bought them. Shouldn't need any more socks for decades. :)