QE

Central Bank attempting to control the money supply

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?

 

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:

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.

The Great Unravelling

Is our economists learning?

Which eras are those of moderation, and which are those of excess volatility? What did the central bank succeed in stabilizing as a result of relying on interest rate adjustments rather than income flow adjustments?