Economic Growth Metrics

I’ve seen many concerns that the Bureau of Labor Statistics’ Consumer Price Index data for prices at grocery stores (food at home) is understating inflation in food prices. Fortunately, there is a second, independent source of data for online prices for groceries from Adobe (https://lnkd.in/eAUU2Mdd). As such, I thought it would be informative to compare how the two series have evolved over the past 10 years. Two charts below. Thoughts: •Top chart shows year-over-year percent change in Adobe’s grocery prices compared to the CPI for Food at Home. The two series correlate in an incredibly strong manner (r = 0.94), with clear relationships over all periods for the last 10 years. Perhaps the biggest difference was Adobe’s data picked up an acceleration in grocery inflation in early 2024, but the series plunged in August (wiping out all the gains). •Bottom chart shows both series as standard price indexes. As can be seen, both series provide a very similar estimate of cumulative inflation: BLS at 28% as of August, Adobe at 30%. That is an incredible degree of correspondence over a 10-year period for two different methodologies. Implication: Adobe’s online pricing data for groceries strongly corroborates the BLS’s CPI estimates for the cumulative inflation for food from grocery stores. Given the scope of Adobe’s data, this should reassure folks that the BLS knows what they are doing when it comes to tracking consumer prices. #economics #markets #supplychain #supplychainmanagement #ecommerce #freight

The July #CPI report came in largely as expected, providing further evidence that inflation is on a sustainable path back toward the Federal Reserve’s 2% target. In the details: ➡️ Headline CPI rose 0.2% m/m and 2.9% y/y (cons. 0.2% m/m, 3.0% y/y), marking the smallest annual increase since March 2021. Importantly, shelter inflation (+0.4% m/m), was responsible for nearly 90% of the monthly increase at the headline level. Food inflation remained benign at 0.2% m/m, while energy prices were flat after two straight months of declines. Excluding food and energy, inflation rose 0.2% m/m and 3.2% y/y, matching consensus expectations. ➡️Core goods prices (-0.3% m/m) fell for a fifth straight month thanks to lower apparel and vehicle prices, with used vehicles falling by a noteworthy 2.3% m/m. ➡️Shelter inflation firmed, driven by 0.5% sequential rise in rent of primary residences. Owners’ equivalent rent (OER) also picked up to 0.4% m/m. However, behind last month, this was the category’s second slowest sequential reading since the end of 2021. Inflation in core services more broadly rose to 0.3% m/m. ➡️Excluding housing, core services inflation also accelerated, gaining 0.2% m/m after a 0.1% decline in June. However, momentum in the category slowed, as its 3-month annualized run rate fell to 0.5%, the lowest print since June 2020. In the details, motor vehicle insurance inflation remained elevated, rising 1.2% m/m, although this was partially offset by a 1.6% decline in airfares. While some of the services components in today’s report looked more mixed, the broad details confirmed that inflation is on a steady path to 2%. Inflation in “consumer sensitive” categories (apparel, vehicles, airfares, etc.) continues to move lower, while inflation is most sticky in the categories in which the government applies statistical adjustments (shelter and auto insurance). The lack of troubling details in today’s report, in addition to other favorable inflation data released this week, should allow the Federal Reserve to focus more squarely on the labor market. With the broader mosaic of economic data slowing, the #Fed is on track to deliver several rate cuts this year, starting with a 25 basis point cut in September. However, another downside shock in the August #employment report could warrant more aggressive policy action.

July CPI (Mostly) Shows Further Disinflation Progress. Consumer prices rose 0.2% in July, in line with economists' expectations. This followed a 0.1% decline in the index in June. By far the biggest contributor to July inflation was shelter, whose costs jumped 0.4% on the month, accounting for nearly 90% of the overall CPI rise. Except for a 0.2% gain last month, shelter price inflation has been running in this range for the last half year. Seasonally-adjusted energy prices were flat in July, following gasoline price drops in May and June. The energy category is notoriously volatile, so we often discount it when thinking about underlying inflation momentum. All items other than food and energy (the "core" CPI) rose 0.2% in July, slightly higher than in June but in line with most other recent months. The overall, or "headline," CPI, has risen 2.9% over the past 12 months, and core inflation was up 3.2%. These represent the lowest year-over-year rates since early 2021, when inflation first began to heat up. Like many monthly indicators, the CPI is volatile, making it is appropriate to consider average movements over a number or months. In the chart below, I show changes over trailing six-month periods. (The most recent three months show even more disinflation progress.) Changes over the last half-year demonstrate the extent to which shelter costs are becoming the last bastion of inflation persistence. The most important recent progress has been in non-energy prices other than shelter, where six-month trailing average inflation had accelerated to a 6.5% annualized pace in April, but has since steadily dropped below 4%. And that progress has continued since then, rising at only a 1% pace over the past three months (not shown). Prices of non-energy goods have been flat to falling over the past half-year, subtracted nearly 1% from overall inflation. Energy costs have been more or less flat, and gasoline prices are now more than 2% lower than a year ago. Over the past six months, overall headline inflation was 2.5%, in line with the Fed's long-run objective. The Fed targets 2% for the Personal Consumption Expenditure deflator, and the CPI tend to run about a half-percent higher than that. In my view, the July CPI numbers do not undercut the positive trend in inflation reduction that has been the goal of the Fed's high-interest-rate policy. It is very likely that this will be borne out in the PCE data later this month, particularly since the latter give a heavier weight to health care and a much smaller weight to shelter. What we will then be watching for is evidence of further cooling in aggregate demand and employment. Already, emerging signs of macro weakness justify the start of rate cuts to avoid recession risk and a costly failure of the Fed's full employment mandate. Given monetary policy lags, that probably should have started sooner. July's disinflation persistence should free their hands. #CPI #inflation #FederalReserve

Based on today's CPI data, it appears tariffs are beginning to moderately push up inflation.   Core CPI inflation was 0.23% MoM in June, indicating that core PCE -- the Fed's preferred inflation measure -- could come in around 0.25-0.30%. That would put the three-month annualized growth rate in core PCE at 2.4%, just a bit over the Fed's 2% target for inflation.   Some takeaways from today's data release: ◾ Core goods prices increased by 0.20% month-over-month in June. Core nondurables increased by 0.34%, including a 0.4% increase in apparel. Durables prices increased by 0.09%.  ◾ Tariffs are having a significantly different impact on vehicles prices versus prices for other durable goods -- for now, despite substantial tariffs affecting the auto industry, there has been no upward pressure on vehicles prices, which decreased 0.4% in Jun and are down 2.8% annualized in the past three months. ◾ However, durables prices excluding vehicles jumped 0.8% in June and are up 5.8% annualized in the past three months -- the fastest rate since 2022 -- with substantial price increases for appliances, other household goods, and some electronics. ◾ Given the limited impact on consumer prices thus far, it appears U.S. firms are taking on most of the burden from tariffs right now -- but we expect that to change in the second half of 2025 as firms look to shore up profitability.   Looking at the bigger picture, the Fed is likely to refrain from judgment on the inflationary impact from tariffs until more time passes. We still see the Fed as likely to move forward with a rate cut at the September meeting, as any further postponement of rate cuts would constitute an effective monetary policy tightening. 

Canada’s Consumer Price Index fell to 1.7% in April, the lowest since early 2021, thanks to the removal of the consumer carbon price and lower crude oil prices. For now, price increases associated with tariffs seem to have been kept at bay. Looking ahead, the removal of consumer carbon pricing will continue to apply downward pressure on yearly inflation numbers in the summer, partially offsetting tariff effects. Nevertheless, inflation will not continue to decrease on a monthly basis since the removal of the consumer portion of carbon pricing will only result in a one-time price drop. This data point is the direct result of policy rather than market dynamics. The other major factor that applied downward momentum to inflation is shelter. Slowing demand due to stricter immigration policies have led shelter inflation to slide to 3.4%, the lowest since 2021.  Shelter prices are expected to remain cool in the next few months as interest rates stay low and the housing market becomes more balanced. While April’s job report displays warning signs of a weakening economy because of trade uncertainty, the disinflation seen in April’s consumer price data increases the odds of a rate hold by the Bank of Canada in June.

Will the Consumer Price Trend Be the Fed's Friend? Many commentators on this platform, elsewhere in the media and on Wall Street will digest the usual suspects from the release of the March CPI report this week, e.g., gasoline costs, used car prices and housing service costs. I'll be more focused on the central tendency of consumer price inflation, a.k.a the center of the distribution of all price changes that is not affected by extremely volatile consumer price components. This provides a sense of the target toward which inflation moves over time once those excessively volatile price changes have stabilized The Cleveland and Dallas Federal Reserve Banks construct such measures of central tendency for the CPI and PCE price indices using a variety of trimming procedures to weed out excessive volatile components of these price indices in a given month: 1️⃣ Median CPI (Cleveland Fed), where the highest 25% and lowest 25% of CPI component price changes are dropped. 2️⃣ Trimmed Mean CPI (Cleveland Fed), where the highest 8% and lowest 8% of CPI component price changes are dropped. 3️⃣ Median PCE (Cleveland Fed), where the highest 25% and lowest 25% of PCE component price changes are dropped. 4️⃣ Trimmed Mean PCE (Dallas Fed), where the highest 31% and lowest 25% of PCE component price changes are dropped. The chart 👇 scales each of these measures into an (6-month) average distance relative to 2% core PCE inflation as a measure of the Fed's inflation target. A lot of progress was made in 2023 in terms of a slowing in the central tendency of U.S. inflation back towards that 2% target. That all changed towards the end of last year and since then underlying inflation rates increased their overshoot of the Fed's inflation target. With the release of the March CPI report this week we'll be getting updates of two of the underlying inflation rate measures, the Median and Trimmed Mean CPI metrics. I expect that these updates will reveal that U.S. inflation has consistently remained more than 1 percentage point above the Fed's 2% inflation target over the past six months. This raises the serious possibility that inflation could level off in above-inflation target territory as we approach the June FOMC meeting, during which many (including myself) are expecting the Fed to start cutting rates. If that were the case, this June FOMC meeting could very well become a pivotal event. #CPI #inflation #federalreserve

"August 2024 U.S. CPI Report: Steady Progress but Sticky Core Inflation" The Consumer Price Index (CPI) for August 2024 came in at 0.2% month-over month, in line with expectations and mirroring July’s increase. Year-over-year, the CPI rose 2.5%, slightly below the forecast of 2.6% and marking the lowest annual increase since February 2021. Core CPI, which excludes food and energy, showed a 0.3% monthly rise—above the anticipated 0.2%—and held steady at 3.2% annually.   Key drivers of the CPI increase were shelter costs, which climbed 0.5% and continue to exert pressure on inflation. Housing-related costs, including rent and owner's equivalent rent, have been a major factor in driving up the shelter index, contributing heavily to the overall increase in the CPI. Meanwhile, energy prices dropped 0.8%, and food prices saw a modest increase of 0.1%, reflecting a cooling in some volatile components. Other contributors to the core CPI rise included airline fares, motor vehicle insurance, and apparel.   While headline inflation continues to moderate, largely due to declining energy prices and stabilizing food costs, core inflation remains sticky. Shelter costs, which account for a significant portion of the CPI, are still climbing, and this persistent rise signals inflationary pressures that the Federal Reserve cannot ignore. Housing continues to be one of the most significant contributors to inflation, and this could keep the Fed vigilant in its approach to policy changes.   With the Federal Reserve's next meeting just around the corner, today’s data strengthens the case for a 25 basis point rate cut, which is currently priced in with an 85% probability by the market. Earlier, there was some speculation about a 50 basis point cut, with a 29% chance, but that likelihood has significantly dropped as inflation, while still above target, has cooled.   My view aligns with the broader market consensus—a 25 basis point cut is the most probable outcome, given the persistent core inflation and recent labor market data. A larger 50 basis point cut seems less likely, as the Fed will probably opt for a more measured approach in light of the mixed economic signals.   What are your thoughts? Do you see the Fed sticking to a cautious 25 basis points, or do you expect a bigger move? #us #cpi #federalreserve #monetarypolicy #interestrates #economy

Core Inflation Cools for Fifth Straight Month as Confidence Quietly Builds The June Consumer Price Index delivered the kind of signal policymakers and markets have been waiting for. Core inflation rose just 0.2 percent month-over-month, softer than the 0.3 percent economists expected, and marked the fifth straight month of below-consensus core readings. Headline CPI increased 0.3 percent for the month and 2.7 percent year-over-year, while core inflation held steady at 2.9 percent. Quiet progress, but real progress. That 0.2 percent monthly core figure carries weight. It matches the pace broadly consistent with the Federal Reserve’s long-run inflation target. It reinforces the idea that inflation is cooling in a sustainable way, not because of collapsing demand but because supply chains, labor costs, and consumer expectations are finding their post-pandemic equilibrium. A July rate cut still looks premature, but markets are now firmly pricing in a move by September. Investors responded in kind. Treasury yields fell sharply, especially at the two-year point most sensitive to Fed action. The dollar weakened, and stock futures pushed higher. These aren’t the moves of a market bracing for trouble. They’re the signs of a system regaining its footing. That matters. Because inflation is not just a data point - it’s a behavioral signal. For businesses, stable prices restore planning confidence. Hiring, expansion, and advertising strategies can proceed without constant recalibration. For consumers, it’s about relief. When prices level off and real wages hold, people resume the everyday decisions they put off in harder times. The result isn’t exuberance. It’s momentum. The details of the report underscore that. Shelter remains sticky, but it's no longer surging. Energy costs ticked up, especially electricity and gas, while categories like new and used vehicles, apparel, and airline fares moved lower. Tariff-sensitive sectors rose only modestly, offering little immediate evidence of policy-driven inflation. In short, the pressures are manageable, and the trend is stable. If the next report looks anything like this one, the Fed will face real pressure to act. Not because inflation is gone, but because the conditions that once justified restraint are fading. We may finally be shifting from a mindset of caution to one of considered optimism. At Havas Edge, we track inflation not just to understand the economy, but to understand what it makes people do. When price anxiety fades, confidence rises. And confidence is the first step toward growth. #InflationReport #ConsumerConfidence #CPI

India's foreign direct investment (FDI) story is one of remarkable growth, with cumulative inflows reaching over $900 billion by 2023. However, the composition of these inflows highlights an essential nuance: a significant portion of investments routed through Mauritius (26%) and Singapore (23%) are not from these economies themselves but represent "hop" jurisdictions used by global investors to benefit from tax treaties and regulatory advantages. When we look beyond these hops, the actual sources of FDI emerge more clearly: United States: A dominant direct investor, contributing to key sectors like technology, e-commerce, and services. Japan: Focused on infrastructure, manufacturing, and the automobile industry. Germany and the EU: Active in renewable energy, industrial technologies, and pharmaceuticals. United Kingdom: Historical ties translate into investments in services, finance, and real estate. China: Though currently restricted in sensitive sectors, earlier investments were significant in technology and consumer goods. The Risks of Concentration and Dependency Relying on a handful of economies—whether directly or through intermediary hubs—can expose India to geopolitical and economic risks. For instance: US-China trade tensions can influence investment decisions from multinationals. Economic slowdowns in the EU or Japan could disrupt ongoing projects. Over-reliance on investments from Western countries could limit India's strategic autonomy, particularly in policymaking. Diversification as a Shield and Catalyst To safeguard against these risks, India must actively pursue a diversified FDI strategy, emphasizing both source countries and target industries. Strategies for Source Diversification: 1. Engaging with Emerging Economies: Africa, Latin America, and ASEAN nations offer untapped opportunities. 2. Middle East Investments: The Gulf Cooperation Council (GCC), led by Saudi Arabia and the UAE, is increasingly investing in infrastructure, renewable energy, and logistics. Strategies for Sector Diversification: 1. Technology Beyond IT: India must attract investments in cutting-edge fields like AI, semiconductor manufacturing, and quantum computing. 2. Green Transition: Renewable energy and electric mobility remain underfunded despite being pivotal for India’s climate goals. 3. Healthcare and Pharma: Diversifying beyond generics manufacturing to innovation-driven biotech and medtech. The Advantages of Diversification 1. Economic Resilience 2. Policy Independence 3. Sustainable Growth India’s FDI strategy must reflect its ambition to be a global economic leader. While current inflows are robust, the dependency on select economies reveals the need for recalibration. Diversifying sources and sectors will not only shield India from external disruptions but also drive sustainable growth and foster independent policymaking.

This image tells two very different stories with the same economy. India ranks among the top global economies in total GDP, yet falls far behind when judged by per capita GDP in dollar terms. The contrast looks alarming — but the comparison itself is flawed. India’s per capita income will never match the US or Europe in dollar terms — and that comparison itself is flawed. We are the most populous country in the world. Per capita income is a simple average, and with 1.4+ billion people, the number will always look lower, even with strong growth. More importantly, per capita is compared in USD, while Indians earn and spend in INR. Dollar conversions ignore cost of living and purchasing power. Ask a practical question instead: Can someone live comfortably in India on USD 2,000–3,000/month? → Yes Can someone live a luxurious life on USD 4,000/month? → Absolutely That same income in the US or Europe barely covers essentials. This is why Purchasing Power Parity (PPP) matters. In PPP terms, India is among the top global economies. Judging India using dollar-based per capita numbers is misleading. We should measure progress by purchasing power, affordability, quality of life, and access to services — not USD conversions.