Hiltzik: The true meaning of inflation

Before Wednesday, you would have been hard-pressed to find an economist who did not expect a spike in inflation to appear in the government’s monthly price report. As of Wednesday, you’ll be hard-pressed to find someone who isn’t shocked by the scale of the increase.

The Bureau of Labor Statistics put the increase in the consumer price index in 6.2% in October over a year ago. This was its largest increase in 12 months in more than 30 years, or since November 1990.

The BLS said higher oil prices were the biggest factor, but it seeped into the economy as a whole. Food prices rose. Core inflation – in the absence of food and energy – has risen by 4.6% over the past 12 months, the largest increase since August 1991.

I hate to say this, but October’s core CPI is just a gourmet; The next few months will be horrific.

Economist Ian Shepherdson

Price increases were seen in “shelter, used cars and trucks, new vehicles, Medicare indices, home furnishings and operations, and entertainment.”

Among the few safe ports mentioned by the BLS were airfares, down 0.7%, and alcoholic beverages, down 0.2%, although prices for major appliances, most clothing and televisions as well, were down.

The overall increase stunned many experts, some of whom have redefined the term “temporary,” by which they were categorizing the price increases seen in April, May and June.

“I hate to say this, but October’s core CPI is just a gourmet”, Economist Ian Shepherdson of Pantheon Macroeconomics tweeted; “The next few months are going to be horrific.” Shepherdson warned that the rate “is heading to 6-6.5% over the next three months, and it could even go as high as 7%.”

Even the perpetually reliable inflation pigeon, Kevin Drum seemed a bit worried about the October rate. “These are big numbers!” he wrote. But is it temporary due to merchandise shortages and the infusion of so much COVID-19 money earlier in the year? I still think so, but only time will tell.”

This is an accurate look as one is likely to get. The problem with inflation statistics is that they are based on a combination of factors, some of which are inherently unpredictable: macroeconomic conditions, the short-run situation, and psychology.

The last of the three is the one that keeps inflation watchers awake at night, because it carries the ability to feed on itself. That concern was voiced on Tuesday by Treasury Secretary Janet Yellen Interview with NPR“Inflation could be a self-fulfilling prophecy,” she said. “As wages go up and companies see their costs go up and prices go up, we get into what’s called a wage-price spiral that continues, unless the central bank comes along and stops it.”

Yellen said she expected the Federal Reserve to remain prepared to do just that, thwarting the return of the “stagflation” of the 1970s. She reminded listeners of the era that “supply shocks” like the oil embargo had turned into chronic inflation. “We don’t see it now, I don’t think we will.”

Yellen said she expects “price increases to stabilize and we will return to inflation close to the 2% we consider normal.”

Shepherdson Pantheon, like other economists, agreed that he expects “as a base case inflation will be much lower a year from now. But every major edition in the meantime has increased the risk that this view will be wrong, because of the likely rise in expectations and wage-setting.”

At the moment, the main danger in the inflation numbers – and the expectations that might fuel them – is mainly political. The specter of long-term price increases provides a talking point for opponents of the social and economic reforms that the Biden administration and Democrats in Congress are pressing with its Build Better Plan.

These include efforts to make childcare and health care costs more equitable, fight global warming, and increase early childhood education. Conservatives, struggling to find arguments against all those reforms, have put their offensive fortifications on the threat of inflation. Now they have more ammo with which to say, “See?”

There is no evidence that the latest numbers – or any inflation stats this season – arise from macroeconomic factors rather than clearly temporary factors such as high demand for goods, shortages of electronic parts such as chips, and backups of imported goods at US ports. Fuel prices have risen to higher levels due to renewed demand after the pandemic and OPEC refused to escalate production to confront him.

Some of these factors will likely persist for months or even worsen – some oil traders say they would not be surprised to see the price of that still crucial commodity hit $100 a barrel, up from its current level in the mid-1980s. And The price of oil has not been seen since 2014.

There is no doubt that the price hikes reported by the government have a clear impact on family budgets. Among other aspects of the problem, last year’s price increases wiped out the wage gains that ordinary workers had made over the same period.

as Reported by Jason Furman and Wilson Powell III At the end of October, wages and benefits had risen at an annual rate of 5.4% over the previous three months, but the price increases left workers with only a 0.6% increase and put their wages below pre-pandemic levels.

But even the large numbers released by the government on Wednesday do not match the reach of inflation fears in the general public – fueled in part by ignorant reports by the media.

The best example of that Reported by CNN on November 4th which have been widely and rightly derided as unjustifiably uninformed. The report focused on a Texan couple who said they bought 12 gallons of milk a week for their nine children and were staggering as the price of milk increased to $2.79 a gallon from $1.99 a few months ago.

Regardless of whether 12 gallons of weekly consumption is acceptable even for a family of this size, the truth is that the average gallon of milk hasn’t been $1.99 in nearly 40 years. In fact, when accounting for inflation, it has actually fallen in price over the past twenty-five years or so.

Wednesday’s inflation report puts the seasonally adjusted change in whole milk prices at minus 0.3% from a year ago and minus 0.5% from June through September. (Unadjusted, up 5.8% in a year, but that wouldn’t represent the 40% increase reported by the household.)

This is not a criticism of the family, but a criticism of CNN, which should have conveyed the factual context of the experience of inflation in the family. CNN, too, did say that a family is entitled to a monthly child tax credit of between $200 and $300 per child (depending on his or her age), which helps ease the burden.

High inflation requires a deeper investigation into its causes than might be expected. One aspect that is sure to receive short neglect is the role of consumer pricing at the company level. According to the Bureau of Economic Analysis, Corporate profits soar At more than 50% since the start of 2020, the epidemic is damned.

Corporate earnings, which have risen more than 50% during the pandemic, are contributing to inflation.

(Federal Reserve Bank of St. Louis)

As Jude Legum notes in his country Popular information site, Procter & Gamble imposed price increases on consumer products “from nappies to toilet paper,” citing increases in raw material costs; Pepsico, Coca-Cola and Whirlpool (owner of appliance brands Jenn-Air, Maytag, Kitchenaid and Amana). All of these companies are very profitable and either they announce fixed profits or expected increases in profits in the near future.

Companies’ complaints about increases in raw material and shipping costs may or may not be real, but it is certainly clear that they have used talk of inflation to raise prices more than the cost increase would warrant. This is shown in government inflation figures, without explanation.

The result is what economist Josh Bivens of the Institute for Employment-Oriented Economic Policy calls an “unexplained jump” in attributing the recent rise in prices to “too much “financial relief and recovery.” There is no evidence that simply providing more help to ordinary families has caused The occurrence of inflation and therefore must be abandoned.

Factors such as the resumption of traditional consumer habits, including a shift away from spending on services and back to goods, are likely behind the surge, along with price pressures from port bottlenecks and spare manufacturing operations.

Inflation is a problem, and it can get worse before it gets better. But we cautioned: Misunderstanding by the public and policymakers — and deliberate misrepresentation by those who would deprive ordinary Americans of the benefits of economic reform — is the far greater threat.

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