Inflation - Are We Taming It?
There is a strong effort by the government to convince us that inflation is heading in the right direction. This effort falls woefully short whenever we buy the things that make our lives work. I could provide countless examples, but since you buy stuff you know exactly what I am writing about.
The Consumer Price Index for December was revised annually by the Bureau of Labor Statistics on Friday, with some modifications dating back to 2018. Just before the January CPI, which will be announced on Tuesday, these modifications were made.
The revisions for the December month-to-month readings were all to the upside, including:
Overall CPI (CPI-U), old -0.1%; new +0.1%. So there goes that.
“Core CPI” (without food and energy), old +0.3%; new +0.4%
Services CPI, old: +0.6%; new +0.7%. This is where nearly two-thirds of consumer spending goes.
The indices were also revised for certain months going back to 2018, some months up, some months down. But for October, November, and December, they were all revised up.
Therefore, in order to determine how far inflation has permeated the whole economy and what its potential future holds, we want to focus on the two most significant revisions.
The services CPI was changed from November (initially 0.6%) to a scorching +0.7% for December. Additionally, it was updated for November and October. The updated services CPI (red) and the original CPI are depicted in this graph (green).
Additionally, the core CPI for October, November, and December was revised upward, suggesting far less "disinflation" in those months and increasing inflation in December. The changes also eliminated some of the 2022 and 2021 surges. The green line represents the original version, and the red line displays the amended core CPI:
These revisions for the last three months demonstrate that despite all the hullabaloo, there was actually less disinflation in October and November and worsening inflation in December. - WolfStreet
Have We Been Here Before?
It is simple to understand how a strong job market may support inflation, growth, and the Fed's cycle of rate hikes. Increased payrolls translate into higher household sector incomes. This has a highly mechanical effect on rising consumer spending. Additionally, it is probably to increase customer confidence, which is supportive of consumer spending. Finally, it promotes wage growth, which increases the household sector's purchasing power.
However, there have been instances where job growth peaked just before a downturn. Former Trump White House economist Joseph Lavorgna, who is currently the head economist at SMBC, noted recently that the economy achieved solid job increases shortly before the 1973–1975, 1980–1981–82, and 1981–1982 downturns. Jobs, in Lavorgna's opinion, are not a good predictor of the state of the economy.
As a result, investors shouldn't give January's stellar employment numbers too much weight. They rather reveal where the economy has been than where growth is headed, according to Lavorgna.
What therefore should we consider? Lavorgna cites the Senior Loan Officer Survey and the Index of Leading Economic Indicators (LEI) (SLOS). According to Lavorgna, these have "exactly foretold past inflection periods." According to the most recent poll, loans officers are tightening requirements and observing decreased demand for a variety of corporate and consumer credit products. Between June and December 2022, a six-month period, the LEI fell by 3.8%.
One hypothesis that hasn't received much attention could be able to bring the contradictory facts together. The market may be correct in anticipating a Fed pause following its rate hikes in March and May. Given the tight job market and high consumer demand, the hikes from last year and this year—while significant and swift by historical standards—might not be sufficient to contain inflation, prompting the Fed to resume raising rates. A resurrected hiking cycle may frighten customers and put a stop to labor hoarding, which would lead to an increase in unemployment. The anticipated recession would probably result from that. - Breitbart
Inflation Is A Robber
“The advocates of public control cannot do without inflation. They need it in order to finance their policy of reckless spending and of lavishly subsidizing and bribing the voters”.
Ludwig von Mises
