Inflation in the USA - the pivot point to deflation

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 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.