## Inflation Trends: A Gentle Nudge
Ah, inflation—a topic as riveting as an English cup of tea, and every bit as essential. The esteemed Bureau of Labor Statistics [announced](https://www.bls.gov/news.release/cpi.nr0.htm) an uptick in the Consumer Price Index (CPI). It rose by 0.3 percent in November, marking a 2.7 percent increase over the year. This is a modest yet notable bump from September’s 2.4 percent and October’s 2.6 percent. It’s crucial, don’t you think?
### Shelter Prices: A Bit of a Sticky Wicket
Interestingly, these changes seem to be driven largely by shelter prices. The index for shelter saw a rise of 0.3 percent in November, accounting for nearly 40 percent of the overall monthly increase. [The Daily Economy](https://thedailyeconomy.org/article/dont-dread-dwindling-disinflation/) suggests that such price hikes in shelter, typically, follow price increases for other goods and services. This is a silver lining of sorts, as shelter influences the CPI quite heavily.
### A Closer Look at Core CPI
Core CPI, excluding those notoriously fickle food and energy prices, seems to remain steady. Again, a 0.3 percent rise in November, mirroring September and October. The year-over-year growth remains rooted at 3.3 percent. Now, isn’t stability a comforting trait, at least in this context?
### CPI and Shelter: The Intricate Dance
From February 2021 until November 2022, the overall CPI outpaced its shelter component. Shelter growth peaked at a rather robust 8.2 percent in March 2023 but has been declining since. Yet, its rate of decrease has moderated, staying above the overall CPI growth. Shelter, remember, weighs quite a lot in the CPI—about [one-third](https://www.brookings.edu/articles/how-does-the-consumer-price-index-account-for-the-cost-of-housing/). This highlights why variations in shelter prices are terrifically significant.
## The Monetary Policy Landscape
### Fed Funds Rate and Real Interest
Turning to monetary policy, the target range for the federal funds rate currently sits around 4.50 to 4.75 percent. Once adjusted for inflation, this gives us a real rate of 1.80 to 2.05 percent. Quite comparing notes, really. The [natural rate of interest](https://www.newyorkfed.org/research/policy/rstar), the inflation-adjusted rate that policy usually aligns with, was likely between 0.77 and 1.26 percent in Q3:2024. Thus, monetary policy remains tight, though less so than in months past.
### Walking the Tightrope with Money Supply
Monetary data indeed sketches a similar narrative. The M2 measure, famed for quantifying the money supply, [grew](https://fred.stlouisfed.org/series/WM2NS#0) by roughly 3.7 percent over the last year. Meanwhile, broader aggregates, accounting for liquidity, [grew](https://centerforfinancialstability.org/amfm_data.php) between 2.64 and 2.97 percent. However, money supply growth doesn’t scream “loose money.” We need to compare it with money demand.
### Calculated Estimations
Estimating money demand involves considering population growth plus real GDP growth. The latest data shows the US population growing at about 0.5 percent per year, whilst real GDP grows at 2.7 percent annually. Summed up, that’s 3.2 percent, which surpasses all monetary aggregate levels. This points towards moderately tight money, wouldn’t you agree?
### Future’s Forecast: Awaiting the FOMC
Looking ahead, the Federal Open Market Committee (FOMC) is slated to [convene](https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm) on December 17-18. Cutting rates shouldn’t be on the agenda. We’ve practically enough data suggesting a potential, albeit hopefully temporary, stall in disinflation. Further easing of monetary policy remains inappropriate. Instead, maintaining the current rate target of 4.50 to 4.75 percent seems wiser, possibly preparing for a rate hike early next year if warranted by subsequent data indicating a setback in reaching 2 percent inflation.
And there we have it: a rather charming outlook on inflationary tales from the monetary quarters.
