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Inflation Watch

Social Security Announces Biggest COLA in Decades

By Inflation Watch, Social Security


The Social Security Administration has announced a 5.9% cost-of-living adjustment for 2022 – the largest increase since 1983.

This cost-of-living adjustment, or COLA, is an increase in Social Security benefits helps offset rising prices that could erode purchasing power caused by inflation.

COLA’s are not guaranteed each year, but are announced each October and reflect an annual increase based on the CPI.

The CPI is compared with the same quarter of the previous year. For example, the CPI for Q3 2021 is compared with Q3 2020.

Benefits begin in January 2022.

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John Weninger, CFP®
Wealth Advisor
Endowment Wealth Management, Inc.

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U.S. Inflation Watch Sep-2015

By Inflation Watch

The Labor Dept. reported that headline inflation fell 0.2% in September from August and was flat or zero on a year over year basis. However, the core CPI which excludes volatile food and energy was up 0.2% over the previous month and increased 1.9% year over year, marking its biggest gain in a year.

Majority of the gain in the core CPI was driven by shelter costs which increased 3.2%. However, the inflation measure preferred by the Federal Reserve, core PCE has a 20% weighting to shelter costs vs. the core CPI which has 40%. Estimates are that the core PCE increased just 1.3% year over year, which is below the Fed’s 2% comfort level.

While inflation is not a worry yet, improving labor markets and wages could subsequently add more fuel to fire in the future. Something we are keeping an eye on.

(Source: WSJ, BLS)

Various Recent Inflation Measures Trending towards 2%

By Inflation Watch

There are various ways to measure inflation including the headline CPI, as below:

  • CPI or Headline Inflation=0%
  • Core CPI=1.8%
  • Cleveland Median CPI=2.3%
  • Sticky Price CPI by Atlanta Fed=2.2%
  • Dallas Fed Trimmed Mean Personal Consumption Expenditures (PCE) preferred by FOMC=1.7%

These are year over year numbers. Hence, despite the decline in commodity prices the Fed believes that inflation is heading towards its 2% target.

U.S. Inflation Watch July-2015

By Inflation Watch

While broadly in line with expectations, last Friday’s consumer price index (CPI) report affirms our view that inflation remains on an upward trend. Pimco projects year-over-year core CPI will finish 2015 at 2.10%, considerably stronger than consensus expectations at the start of the year, and well above 2014’s rate of 1.61%.

However, the drivers of inflation may begin to change over the cyclical horizon. For example, shelter inflation has driven much of the recent strength in core CPI. In June, both rent and owner’s equivalent rent, which combine to make up around 40% of core CPI, increased by 0.4% month-over-month. Shelter inflation should remain strong, but it may be tempered a bit over the medium run by increasing housing supply, a trend underscored by today’s strong housing starts and building permits data.

Weakness in Friday’s report came in core goods (-0.1% month-over-month) and medical care services (-0.2%). Going forward, however, we expect some of the pressure on core goods inflation to abate, as the U.S. dollar and oil prices have been roughly flat since March. We also expect wages to rise over the coming year, which should result in more broad-based services inflation beyond the shelter component.

One wrinkle in the report is that the weakness in medical care inflation means that core personal consumption expenditure (PCE) data should remain soft relative to core CPI data, since the PCE measure places greater weight on medical inflation. Nonetheless, core PCE should still likely finish the year above the Fed’s 1.30% to 1.40% projection for 2015 if our forecasts prove correct.

(Source: PIMCO, WSJ)

Euro Zone Inflation Watch January 2015

By Inflation Watch

Euro Zone consumer prices fell 0.6% in January vs. the previous year. Services inflation, traditionally more domestically driven, fell to 1%, according to Eurostat. Meanwhile, core inflation—excluding food, energy, alcohol and tobacco—was just 0.6%, the lowest on record.

U.S. Inflation Watch-December 2014

By Inflation Watch

U.S. consumer prices rose at 0.8%,  the slowest annual pace in more than five years in December and are poised to slow further in coming months amid the global plunge in oil prices. That was sharply slower than the 1.3% annual growth pace seen in November, and the lowest annual reading since October 2009.

Excluding the volatile categories of food and energy, so-called core prices rose 1.6% on the year, slowing from a 1.7% annual gain in November and 1.8% annual growth in October.

U.S. CPI Dec-2014

(Source: WSJ)

Oil declines 46% in 2014. What’s in store for 2015?

By Inflation Watch

Oil futures closed the year at more-than five-year lows, as plentiful supplies and tepid demand continued to send prices plunging. Brent crude oil and gasoline futures both posted 48% losses in 2014, making them the worst performers among the 22 commodity markets tracked by the Bloomberg Commodity Index. U.S. oil futures dropped 46% in the year.

Brent crude futures settled down 57 cents, or 1%, at $57.33 a barrel on London’s ICE Futures exchange, the lowest level since May 15, 2009.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in February fell 85 cents, or 1.6%, to $53.27 a barrel, the lowest settlement since May 1, 2009.

Oil, gasoline and diesel markets all posted their largest annual losses since the global recession in 2008.

(Source: WSJ)

U.S. Inflation Watch-November 2014

By Inflation Watch

The Labor Dept. reported yesterday that the index of consumer prices was down 0.3% in November and was up 1.3% year over year vs. 1.7% in October. Much of the decline was due to falling gasoline prices which make up about 5% of the index and were down 11% year over year. This was the biggest one month drop since December 2008.

Excluding food and energy core CPI rose 0.1% in November and 1.7% year over year.

With gasoline prices expected to fall further this index is most likely on a downward path in the near future. One metric to watch is wage growth. A separate report Wednesday showed Americans’ wages are picking up as the labor market strengthens. Americans’ real average weekly earnings rose 0.9% in November from the prior month. That reflected a 0.6% rise in inflation-adjusted hourly earnings and a 0.3% increase in the average workweek.

(Source: WSJ)

U.S. CPI under 2% and poised to cool off

By Inflation Watch

The Labor Department on Wednesday reported that its consumer-price index rose 0.1% in September from August, as did the core CPI, which excludes food and energy prices. That put both measures up just 1.7% from a year ago.

Credit Suisse estimates that as a result of falling gasoline prices, by the end of the first quarter the CPI will be up less than 1% versus year earlier, all else being equal.

One place there has been inflation is shelter costs, which is primarily rent and imputed rent—what people would pay if they rented the home they own. These were up 3% in September from a year earlier. Absent them, core prices rose a scant 0.9% year over year. Owners Equivalent Rent is the big gorilla in the inflation room. It accounts for 24% of the total CPI and 31% of the core. So why isn’t the accelerating OER rate pushing up the core? Because other factors are offsetting the upward push.

The biggest drag is the downward pressure on goods prices coming from overseas.

Policy makers and economy-watchers now seem more worried about disinflation rather than accelerating inflation. That wasn’t the expectation at the start of the year. In January, economists surveyed by The Wall Street Journal expected inflation–measured by the consumer price index–would end 2014 at a 2.3% annual rate, up from the 1.5% rate of 2013.

(Source: WSJ, BLS)