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Inflation in the USA - the pivot point to deflation

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Inflation figures in the USA are frightening – 8.3%. At the same time, the rate of inflation has been slowly decreasing since June 2022. As was mentioned in this post published on June 3, the inflation in the USA is driven by the printed money pumped into the economy through Personal Income. In that sense, the price inflation has to be as transient as the injection of helicopter money. In other words, no printed money – no inflation a year later. Figure 1 depicts the link between helicopter money (as expressed by the excess of printed money in the Personal Income part of the nominal GDP). The helicopter money flows through the economy and affects the prices approximately one year after. The new injection of “counter-inflation” money will bring a bit more inflation in approximately 2024Q1. 

Figure 1. The current CPI (blue dots) delays by approximately 1.25 years behind the money injection. The shifted CPI (red dots) is synchronized with the money injection as expressed by the PI.  In the near future (likely in 2022Q4 or 2023Q1), the CPI will fall below the zero line.

Meanwhile, the price growth practically stopped and the CPI stalls at the level of 295 as Figure 2 shows. A year ago, the CPI was 273 and this gives the current inflation rate of 8.3% per year. Figure 1 shows that the rate of inflation has been falling since June 2022 as a reaction to the constant CPI since June 2022 and the growing CPI a year ago. The gap between the CPI values in 2022 and 2021 has been decreasing and the rate of inflation drops. 

Figure 2. CPI curve from 2015. Notice the shelf since June 2022. 
Figure 3 presents the monthly increment in the CPI and Figure 4 shows the corresponding rate of inflation. One can observe the coincidence of negative monthly CPI increments and deflation. The CPI growth stopped and the rate of inflation will be decreasing accordingly. Moreover, there is no reason for the CPI not to decrease after a dramatic growth period and the absence of printed money. The PI value is 2022Q3 will likely be at the long-term level with a high probability of a slight decrease as the trend observed in 2022 shows. The share of PI in GDP fell from 0.8753 in 2021Q4 to 0.8695 in 2022Q2. The GDP and PI estimates are quarterly and the next estimate will be published in October. The CPI data for September will be published earlier and there is no reason to think that the CPI inflation will not fall significantly.  

Figure 3. The monthly CPI increment. Notice the fall in the monthly increment in July and August. 

Figure 4. The inflation rate. Notice how the periods of deflation and low inflation coincide with the negative monthly CPI increment. 


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