Buffalo Springfield sang that something's happening here...and what it is ain't exactly clear.
Inflation fits that thought. Countless articles have been written lately to document the return of this rabid animal. We haven't had to worry about inflation for quite a while so its a new kind of paranoia.
I decided to look at some of the numbers to get a better idea and it was a little shocking to see the stark changes. I won't predict the future but I have to say the story does not look as scary as some would have it.
Much of the increase in inflation has come from admittedly temporary factors associated with Covid and Covid lockdowns. It would be nice to think that those changes are over now but it's probably too soon to put Covid to bed.
I took numbers from the BLS -- for the monthly CPI. I compared the percentage change last year -- July 2021 to July 2022 to the average of the one-month percentage changes for the past three months -- May, June, and July of 2022. It is pretty startling.
1 Year 3 months
All CPI Items 8.5 0.8
Food 10.9 1.1
Energy 32.9 2.3
Fuel Oil 75.6 1.6
Airline Fares 27.7 1.3
Gas Utilities 30.5 0.8
Food Away from Home 7.6 2.5
Gasoline 44.0 2.5
Clearly the last three months have been as unusual and unexpected as the last year. Looking at the average price of all the items in the CPI shows an increase of 8.5% from 2021 to 2022. That's a whopping increase. That performance has caused us to get a little crazy. Thinking the Fed is going to tighten money and raise interest rates to combat that supercharged inflation is doing a lot of economic damage. Just the worry that the Fed is going to tighten is causing people to be more cautious about spending. We are worried we might even get a recession. The simple expectation of tightened financial conditions is causing us to think a recession is around the corner.
But then May 2022 arrived and the inflation data turned a corner. After rising at 8.5% for a whole year, we see the inflation rate in recent months falling to less than 1%. Less than 1% over three months! True, its only three months. I don't recall anyone predicting this. But clearly, if inflation surges can be caused by unusual things like Covid, then it is possible that those surges can reverse themselves.
I don't think this reversal should be considered impossible. Look at some of those increases -- Fuel Oil 76%, Gasoline, 44%, Energy 33%. Those are huge increases and the fact that they had their day and are now returning to something more normal should not seem crazy. Somebody said, "what goes up must come down."
That saying has to do with gravity but is it intuitive that once a price rose by 76% in one year -- that it should keep rising at 76% forever? I don't think so unless you can tell me what permanent change should cause prices to keep rising at 76% for the foreseeable future.
Stop. What's that sound? Everybody look what's going on.
Dear LSD. Yepper, something’s ‘app’n here ‘n it’s not exactly as unclear as the Buff’s lyrics suggest. Rather, it’s clearly more intentional than incidental, such as due to Covid—which did disrupt supply lines, caus’n shortages, ‘n ergo price increases.
ReplyDeleteFer wutever reazon you didn’t mention govomit policies that directly predicate price increases. Specifically, the war on fossil fuels (per yer data: Energy @ 32.9, Fuel Oil @ 75.6, Gas Utilities @ 30.5, Gasoline @ 44.0), which are essential cost inputs to almost all products/services. That war is intentional; not incidental and likely will last longer than Russia/Ukraine—keep’n most prices up fer yearz to come. (I doubt the prices for these inputs “have had their day” and will persist due to demand exceed’n a policy-induced intentional curtailment of supply.) Add to this the Fedz impend’n rate increases, the govomitz profligate spend’n ‘n deficit explosion ‘n ya gotta conclude that even if Covid-related “temporary” inflation abatez that policy-induced ‘flation will be ‘round fer a long time.
Wutz that sound? It’s the intentional destruction of the U.S. economy/kuntry. ‘appy ‘our two ‘ourz away! Cheerz!!
Agreed dear chicken of the sea -- but you have to admit that the last three months of data are hard to explain. Is it a breather? Or What?
DeleteMe tinkz it’s a head-fake, mis-direction play, and naked boot-leg combined. Me tinks de macro eco-politico, ferign ‘n domestic mis-policy stuff will trow de economy/kuntry fer a multi-yard loss forcing it to punt into a 50-mph gale headwind.
DeleteWill be interesting to see what happens. I hope you are wrong but the macro stuff sure doesn't bode well.
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