Great Unravelling, Part 2, What Price Stability?

Continuing with our chartbook investigation as to what was moderate during the Great Moderation, let’s turn to prices — based in part on this post.

Let’s start by looking at spreads in consumption prices versus investment prices:

Investment Price Index/Consumption Price Index, base year = 1 at 2005

The relative rise in consumption prices is driven primarily by health care and housing services:

Major PCE components

What about relative price volatility? I took the y/y percent change of the following PPI time series:

  • Producer Price Index: Finished Goods: Capital Equipment (PPICPE), Percent Change from Year Ago, Monthly, Seasonally Adjusted
  • Producer Price Index: Crude Materials for Further Processing (PPICRM), Index 1982=100, Monthly, Seasonally Adjusted
  • Producer Price Index: Intermediate Materials: Supplies & Components (PPIITM), Percent Change from Year Ago, Monthly, Seasonally Adjusted
  • Producer Price Index: Finished Consumer Foods (PPIFCF), Percent Change from Year Ago, Monthly, Seasonally Adjusted
  • Producer Price Index: Fuels & Related Products & Power (PPIENG), Percent Change from Year Ago, Monthly, Not Seasonally Adjusted
  • Producer Price Index: Finished Consumer Goods Excluding Foods (PFCGEF), Percent Change from Year Ago, Monthly, Seasonally Adjusted
Producer Price Index series dispersion

..and calculated the standard deviation of these series:

Price Dispersion measured as STDEV of % changes of Major Producer Price Indexes

In addition to spreads in producer prices, let’s look at spreads in rates, i.e. risk premia:

BAA-AAA spreads

From Shiller Data, we have the house price index relative to the consumer price index:

Real House Price Index

What price stability?

 

Great Unravelling, Part 2, What Price Stability?

Adventures in cognitive dissonance: China may consume too much

We smelt the steel
to make the hammers
to dig the mines
to mine the ores
to smelt the steel

Update 2: Added a Youtube video
Updated 1: Added snark

Noah Smith doesn’t understand why everyone who’s ever looked at Chinese development seriously is calling for a re-balancing and consumption led growth. Instead, he is worried about bliss points:

Or does it mean that consumption should rise faster than the other components of GDP? Fine, but consumption’s share of GDP can’t increase forever. Eventually, consumption’s share will hit a ceiling, and the “consumption-led growth” – if this is what it means – will be gone.

On the other hand, we have the historical record:

Image

Source  For those with low screen resolution, the declining right hand curve corresponds to China — an aging population filled with households that would very much like to consume if they were given the chance to do so. And yes, that is a consumption figure of only 35% of GDP which is most likely an overestimate.

Adventures in cognitive dissonance: China may consume too much