Hey guys, it's Sasha US Inflation is at 3.4% which is a tiny bit higher than the 3.1% in November. And here is what all the financial journalists thought about it: us: headline inflation edged up to 3.4% in December said the Financial Times inflation edged up in December said the Wall Street Journal US Inflation edged up in December said ABC News and US Inflation edges up said the Boston Globe. You can see that these esteemed Financial journalists of course shared their actual personal analysis and did not just copy and paste whatever the accepted narrative is. The US dollar immediately started going up and the stock market went from green to Red in pre-market trading because of course inflation went up 0.3% and therefore you should throw all your toys out of the pram, run around waving your heads, and panic above your head because it is time to panic.

The biggest ever recession is coming. The stock market is going to crash. 15-year-old Finance Experts on Tik Tok are going to have a F Day with this one, but I prefer looking at the number numbers and seeing what's actually happening instead of repeating the same. For some reason, the US Bureau of Labor Statistics forgot to print the usual table that they always print in their press release.

So here is the Pdf version and you'll notice that the month-to-month movement in overall inflation is plus 0.3% which is what everyone is worrying about. But let's look at what is actually driving this and I do apologize. This is going to get very geeky because it's important to understand exactly what the data is actually saying. First, you can see that the column at the end of this table is the unadjusted 12-month inflation rate.

But the month-to-month numbers to the left are seasonally adjusted. and this is really important because the two are not the same thing. I Have a colleague who wants something. what do you want? You just got fed.

Come on. all right. So the numbers on the left are massage based on the Bureau of Labor Statistics special statistical adjustment methodology called making Up. If you look at the detailed data, you can see that the seasonally adjusted month-to Monon movement in inflation is 0.3% right here.

but the unadjusted number is minus 0.1% So now you are probably wondering if the unadjusted month-on-month number is negative. Why did the unadjusted year-on-year inflation number go up? Well, the reason is this: if you go back exactly 12 months, you can see that in December 2022, the unadjusted month-on-month inflation was minus 0.3% So this month that minus 0.3% for falls out of the year-on-year inflation data and it is replaced by minus 0.1% So minus 0.1% is higher and therefore the overall inflation figure has gone up. This phenomenon actually has a name in mathematics. It's called The Simpsons Paradox When the detailed numbers are going down and you can see that they're continuing to go down.

But when you take the oneyear average, the one-ear sum of those numbers, it looks like it's going up. and the seasonal adjustment is a huge issue at the moment because the methodology completely distorts what's actually happening with inflation. In the United States look, Energy overall is up 0.4% according to the main table, which is the only thing that any Wall Street Analyst or journalist will ever actually look at, but without the seasonal adjustment. Energy Prices actually fell 2.8% in December Look at some of the components.

Gasoline apparently went up 0.2% in December using the adjusted data, but in reality it actually went down 5.8% in just 1 month. Electricity prices are up 1.3% on an adjusted basis, but in reality they've gone up less than half as much by 0.6% The biggest Factory inflation shelter is high whichever way you look at it at 6.2% but it is continuing to drop every month. You can see the trend in shelter inflation on this chart from the St Louis Fed, and falling housing costs may start cooling off. Overall Inflation: While housing prices have skyrocketed in the past 2 years, fueling a large piece of overall inflation, the New Year may bring a welcome relief to renters.

According to Wall Street Journal analysis, it's the last major piece of the puzzle in the Fed's fight to push inflation down to 2% You, of course, would already know all of this if you read the Daily Upside who are the sponsors of today's video? The Daily Upside is a completely free newsletter that gets you short summaries Of the most important financial news every morning. You can read the whole email in just a few minutes over a cup of coffee. And unlike a lot of the mainstream media, the Daily Upside actually makes a whole lot of sense. When inflation data came out last month, they made the same point that I've been making in saying in fact, without housing, inflation would have risen just 1.4% through November below the Fed's 2% Target I Also Personally appreciate the Daily Upside presents the news with a very healthy serving of sarcasm.

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Now Using the link below. now, everyone is panicking because this increase in inflation means that the FED will probably not reduce interest rates anytime soon because you know inflation is sticky. Well, here is the chart of the US Consumer Price Index from the St Louis Fed. This is unadjusted data.

You can click this button that says edit, graph and select percentage change which gives you the month-on-month movement. And if we zoom in on the recent data, you can see that the real unadjusted data has been negative for US inflation for the last 3 months. The reason inflation edged up as the wannabe journalists put, it, is because in December last year, it was even more negative. But look at what happened in the data from January 2023, it was up 0.8% in January, then another 0.6% in February, up 0.3% in March, and another 0.5% in April In December 2022, we saw a huge negative print for energy inflation.

It was a one-off driven by a sharp drop in gasoline prices that month because oil price fell from November to December. The point is from January last year we were seeing very high month-on-month movements because the one-off energy drop went away. But if you take out the weird volatility in late 2022, you can see where the monthly inflation has been headed for the last 20 months. And when we see inflation data for January next month, we will be looping January from last year.

So the plus 0.8% from last year's January will full out of inflation data and it will be replaced by whatever this year's January number is. And if for example, this January the number comes in at 0% or 0.1% or 0.2% which is where the trend is currently pointing to, then the overall rate of inflation will suddenly drop to something like 2.7 or 2.8% or even lower. And I can guarantee that everybody is going to be massively surprised. When that happens.

we will have to wait and see, but if the same thing happens in February the official inflation number will be sitting at somewhere around 2 .5% and the Federal Open Market Committee has a meeting scheduled for March 19th and 20th. Just after we see the February inflation dat to come out and today everyone is panicking, crying into their pillows and saying that we have a sticky inflation problem. But time is a wonderful thing and at the moment the market is saying there is absolutely no chance at all of a rate cut at the March meeting I Am not so sure that probability of that is based on any actual analysis because if the rate is still sitting at 5.5% and inflation forc to 2.5% the expectations on the rate cut can shift very quickly. The Zumper report hasn't been updated for December I Imagine they are still recuperating after the staff New Year's party, but you can see that the rent inflation is sitting at pretty much 0% in that data and it has been coming down consistently over the last 2 years.

Us mortgage rates peaked at the end of October and have already fallen from almost 8% to 6.6% This is still very high, so anyone who has to move will be paying a very expensive interest rate, but these rates run on expectations of where the Fed rate is going and if inflation drops as it is currently looking like towards the 2% Mark in the next few months, those expectations can move very quickly. Just like they move very quickly on the way up. The reason this is important is that Shelter is holding up the rest of the inflation index. The overall rate of inflation in December was 3.4% Shelter was at 6.2% and it makes up over 35% of the inflation total total.

If you do the math, that means the rest of inflation except Shelter was at 1.9% below the Fed's 2% Target And Shelter is a lagging indicator, which means that when rent prices stop growing and when mortgage rates come down, it takes several months for that data to feed into the CPI shelter number. So the truth is that inflation data continues looking better every single month and interest rate cuts are coming. But I Guess analyzing data is not as much fun as selling. Panic So get ready for all the finance.

Bros Trying to decide if Jome Power is hawkish or dovish or maybe Spyro is. Or maybe just complete tit at the Fed's meeting at the end of the month? Remember to go and sign up for the daily Upside using my link in the description and I'll see you later.