Mixed Jobs Report for October

Inflation Rate Down Again

Data released by the BLS this week shows that the rate of CPI inflation in the U.S. was just 3.2% in October.  The graph below shows annual inflation rates since 1990.

Inf 1123

This is monthly data, but it shows the percentage growth in the CPI over the course of one year. This is how we generally measure inflation, but drastic shifts in this inflation measure are rare because it includes data for the entire preceding year.  In fact, looking at the raw CPI data for October 2023 indicates no change at all for the CPI (zero inflation) for the month of October.

I like to point out that the battle to reduce inflation has been admirably fought by Jerome Powell and the Federal Reserve.  They have weathered many complaints about potentially rising unemployment over the past year and a half as they tightened monetary policy through interest rate rises.  And yet the unemployment rate in the U.S. is still just 3.9 percent.  

The Fed's increases in interest rates have reduced the quantity of money circulating in the economy.  The graph below shows the M2 money supply since 1990. 

M2 1123

Economists do not all agree on the direct link between M2 and inflation, but they are clearly not unrelated.  That is, many factors might influence inflation in the economy, but the M2 money supply is a clear contributor.