Evidence for inflation: Changes in DXY/CPI

2020年8月9日

Inflation is erosion of the dollars buying power: ( when consumer prices are changing (rising) faster than the value of the dollar.) One way to quantify this is the ratio between the Dollar (DXY) and CPI (the Consumer Price Index). A decrease in this ratio is consistent with the concept of inflation

As of August 9th 2020 two analysis below (A & B) show** the dollars buying power is dropping (the slope of the DXY/CPI ratio is decreasing)

(A) Quantitative Analysis:

Top Bolinger Band (green): Length is 634 weeks, starting from the 2008 crash low.
Bottom Bolinger Band (Orange): Length is 50 weeks (~ one year)

The two bands show that every time the DXY/CPI ratio crosses the BBands mid-line (634MA) it coincides with a statistically significant change in the 50 week trend (abs(BB50) >2SD, p<.05,). The current values of BB634 and BB50 suggest that we have entered a period of increasing inflation.

(B) Inferring causality:
A smaller DXY/CPI ratio can be the result of a) a drop in DXY value (with no change in CPI) b) a price increase (CPI) with no change if DXY value. There's room for both a and b since, first, DXY charts for this period show an irrefutable drop in DXY value. Secondly (and informally) I recently got back from shopping and, bruh....shiz got expensive!! /sarc

Notes:
** the analysis are consistent with a rejection of the null hypothesis that there is no change.