News is 15 minutes old.
Still too new for print articles.
Big Picture, Fed is still doing the right things and if it stays the course it will bring inflation down.
But their errors are always on the same side. They are always carving out exceptions to their policy.
“Gotta protect housing,” and
“Banks are central, gotta save the banks” and
“The latest bailout is a return to QE, but only in the short run so it won’t matter,” and
“The bond market is doing our job for us so, we don’t have to continue,”
etc.
It remains uncertain if they will stand firm, (good)
or carve out too many temporary and/or targeted exceptions their policies (bad.)
Thanks for joining us. Here are five key takeaways from the US consumer price index report for December, released Thursday.
The overall CPI rose slightly more than expected last month, at 0.3%, while the core index, which excludes food and energy prices, was up 0.3% – in line with the median forecast in Bloomberg’s survey. Shelter costs continue to contribute over half of the overall increase in the cost of living.
Annual inflation rates continue to show gains well above Fed policymakers’ target. The headline CPI was up 3.4% over the 12 months to December, in an acceleration from the previous month, while the core CPI climbed 3.9%. Motor-vehicle insurance costs surged over 20%, the most since 1976. . . .
Excluding volatile food and energy prices, the so-called core CPI also rose 0.3% for the month and 3.9% from a year ago, compared with respective estimates of 0.3% and 3.8%.
Much of the increase came due to rising shelter costs. The category rose 0.5% for the month and accounted for more than half the core CPI increase.
Food prices and gas prices, the gauge most of us use to estimate inflation go both up and down (although the long-term trend is clearly “up.”)
But those items are only about 20% of all spending.
The other 80% is shelter, shelter-related, cars, insurance, education etc.
Except for a few consumer items included there-in, those items tend to have sticky prices. Those prices are 3.9% higher this year and they won’t go down
You will be paying the add’l 3.9% next year, next decade and when you retire. So will your kids and your grandkids.
Truthfully, not it’s not (not if you mean it in the inflationary context I think you do).
The markets did not have a very big reaction.
I think the markets sensed that the estimates (3.2%) were wrong.
There is a ton of cash on the sidelines in America.
We never hold more than 40-60% of income in cash, checking, money markets etc…
If the Fed takes that off the table too quickly, we have a recession.
If the Fed leaves it on the table we will have an inflationary boom-to-bust.
Right now the inflation hawks (most conservatives) are concerned that the Fed will take the money off the table too slowly, carve out too many short term exceptions to its policy etc. and we will return to inflationary boom-to-bust.
What’s been going on here is this:
Over the past 12-24 months the pro-Biden types have been arguing that wages are outpacing inflation.
They are wrong . . . or rather they were wrong, until now. I’ve been consistently making a two-point argument showing how wrong they are as follows:
1.) “Income” is not “wages and salaries.” “Income” includes, “wages and salaries” plus the cost of health insurance, plus small business income, rents from investment properties, rents from AirBnBs, as well as SS checks, welfare checks etc…
2.) Income has outpaced inflation but wages and salaries have not.
Much to my embarrassment, I was mid-argument this morning when I discovered my second argument is no longer true. Ooops. My bad. As of Dec, wages and salaries have increased, Y-o-Y a bit more than inflation.
.
.
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Now I can no longer say things like “For the average American worker its like losing 9 of your ten vacation days.”
Now, to be accurate, I have to say things like “If you didn’t get a raise this year it’s like losing 9 of your ten vacation days.”
3.4% inflation is not good. That is 70% greater than the target rate of 2%. (Prices double in 20 years at 3.5% inflation.) While it’s certainly better than the 7% and 6.5% in '21 and '22 respectively it is still a significant drag on the economy. By comparison, inflation ranged from 1.9 to 2.3% (averaging 2.1%) from 2016 through 2019. It was only 1.4% in 2020 due to the effects of COVID on the economy.
Then the Fed Board can cancel the rest of it’s decisions this year, shut down, go home and let the free market adjust to a clear, transparent, steady set of policies.
Sarcasm aside:
the pres and Congress have little to do with inflation compared to the Fed. Inflation is primarily a function of money supply. Borrowing money from bond investors, and giving it to rich TESLA owners and windmill companies has little effect on CPI.
In case it matters:
Econ professor & Senior Policy Director for the Committee for a Responsible Federal Budget, says “If you were to remove the effects of fuel prices, this January’s inflation number would be higher than last January’s.”
Put differently:
Inflation is rising, not falling, but thankfully that has been offset by a nice increase in oil supply.
Ooops.
