I update this chart whenever there’s news on this. Nothing new here.
The Fed leads. That’s all there is to it. The growth or shrinkage of the Fed’s balance sheet leads the conventional “inflation” measures by 6 months to a year, in both directions.
So be prepared for sky high inflation prints for at least 4-5 more months, and maybe 10-11 months. The latter is more likely because the BLS’s bogus method for measuring housing inflation not only grossly suppresses the actual number for housing inflation, it has a very long built in lag. Even if most CPI components start declining soon, top line PPI will continue to rise for months, thanks to the BLS’s disgracefully dishonest housing inflation measure. The BLS’s housing inflation contortions account for one third of top line inflation, and 40% of core.
The purple line is the Fed’s System Open Market Account, in other words, its securities holdings. You see the Fed’s balance sheet normalization 2017-19, where Yellen shrank the balance sheet, and then the return to massive QE in late 2019.
When Yellen shrunk the balance sheet from October 2017 until late 2019, all popular measures of inflation declined with a lag.
Then along came Powell and his QE panic. You see the result.
And the Fed pretends to be surprised by inflation.
You have to wonder what is wrong with these people. Are they blind? Are they stupid? Are they ignorant of inflation’s cause? Or are they just moral pygmy lying liars who lie?
I will let you be the judge.
Unlike elephants, economists always forget the principals that are inconvenient for them to remember:
“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” – Milton Friedman
Note that the Core Final Demand Finished Consumer Goods PPI isn’t held back by a housing suppressor. Nor does it reflect the true outsized impact of 15-20% annual housing inflation that the CPI and PPI ignore. But at least it’s more accurate than the other two.
