Today's video, we're going to talk about why inflation matters, specifically,
big news about the CPI index, which you're not going to want to miss.
So wait till the end.
So I like to call inflation the silent theme.
As many of you know, inflation is just like a thief robbing
you and everyone you know of your hard earned money as you continue to pay more
and more for things that you used to have just a year or two ago.
And as you know,
inflation is one of the bigger issues that the Federal Reserve is facing.
They are using these federal funds increases that we've seen throughout 2020
to put continue to lower the CPI or the consumer price index.
One of the bigger issues facing the CPI is right
on the Bureau of Labor Statistics own website.
They're going to start in January of 2023 with the data.
The BLF plans to update the weights annually for the Consumer Price Index
based on a single calendar year of data
using the consumer expenditure data from 2021.
Maybe some of you have been
to a magic show before, but what the BLS is actually doing here
and what they're actually doing is they've decided to calculate the data
differently than they did last year or the 2023 time frame.
And why is this important?
Because the information that you're about to see come out next week is going to be
significantly different because of the way they calculate the math.
So what does all of that mean?
And what it means is that they used to use the data or two years.
In other words, the two years is what they use the data on the average.
And here on their own website, it shows that they're now going to start
using a singular calendar year of data
in 2021 as opposed to two in the chart
on the Bielsa's own website, you can see some of the categories.
There's over 80,000 that make up the CPI index.
I've circled energy, gasoline, used cars and you guys all know
you've been through this yourself.
And as you can see, these are very, very different from year to year.
So you'll see in a minute how this calculation of two years,
the one year, as you could see here, because each year is
very different, is going to change your CPI significantly.
So now let's take a look at the real CPI number for 2021
and 2022, as reported by the BLS themselves.
So on the left hand side here in 2021, you can actually see
the inflation statistics.
I'm up and we start off the beginning of the year and 2021 at one point
more than 1.7, and we ended up at 7% by the end of the year,
which averaged about 4.7 for the entire year of 2021.
And now you can take a look at 2022,
the exact same scenario from the exact same website.
You can see the first month was 7.5.
We got all the way up to 9.1
and now we're down to about 6.5 and the average was 8.38.
So hopefully you see where this is heading.
So just a summary as you take 20, 21 plus 2022,
which is roughly 30 divided by two, which is what the BLS used to do,
and you come up with about a 6.5% inflation rate.
This number is what the Federal Reserve has been using
to raise the federal funds rate and slow down the economy.
But now the BLS decided to eliminate 2022
only focus here where the trailing rate is 4.7 for 2021.
So my prediction for next week is that because the BLS is changing
their way, that they're doing their math and using the 2021 number
that this 6.5 could drop signify faculty as much as two percentage point.
So let's just summarize what just happened here.
The B-class on their own website decides that they're going to go
from two years to report the CPI to one point number two.
If you take a look at inflation for the last half of 2022, which ended
at 6.5% in December, what you really need to do is take a look
at all the inflation through 2022, which is of course well over 8%.
So my prediction when rates come out next week is because they're still
at a target of 2%, that we might have a CPI rate
in the mid fours because of this new math.
But we know, of course, that December was just at six and a half.
So there's going to be a magic show or another illusion because as you guys
know, nothing just drops like that by 2% without changing some math.
So this will take some pressure off the Fed.
But of course, we don't know what they're going to do with rate
and we don't, of course, know what's going to happen
with housing prices, because with all of this,
there is a lag, which I talked about in some of my other video.