KEY DATA: CPI: +0.4%; Over-Year: +5.4%; Ex-Food and Energy: +0.2%; Over-Year: +4%;/ Real Hourly Earnings: +0.2%; Over-Year: -0.8%; HWOL: +3%; Over-Year: +63.6%
IN A NUTSHELL: “Price pressures are hardly fading, and inflation is eating into household spending power.”
WHAT IT MEANS: Economists have a saying that if you forecast something long enough, you will eventually be right. Well, Fed Chair Powell may eventually be correct when he says that inflation will fade, but for now, he is still forecasting the same thing, but it is yet to be accurate. Consumer prices jumped sharply again in September, driven by a wide variety of factors. Energy and food led the way, which should surprise no one who actually pays for food and energy. If you are on the Fed, well that’s a different story. Excluding those volatile components, prices rose more moderately . New vehicle, shelter and medical commodities costs were up significantly. Most disconcerting was another surge in fresh cake and cupcake costs. I am getting priced out of the market (never!). And if you eat out, forget it. Restaurant prices seem to be on a stairway to heaven. On the other hand, apparel, medical services and used vehicle prices declined, limiting what could have been a really ugly rise in household expenses. Over-the-year, the increase in consumer prices was the largest since early 1991. Yikes. There was one bit of good news in the inflation data, at least for those on Social Security. The cost-of-living adjustment will be 5.9%, the largest in about forty years.
The high inflation rate is causing wage earners to think they are hamsters on a wheel: They just keep running in place. While hourly earnings continue to jump, the gains are being eaten up by rising prices. Despite 4.6% rises in both hourly and weekly earnings over the past year, real (inflation-adjusted) earnings declined. It may take the $21 or more starting wage that some banks are now targeting to pull wage earners out of this morass.
Meanwhile, businesses continue to look for workers all over the Internet. The Conference Board’s Help Wanted OnLine Index skyrocketed in September and is up massively over the past year. No, this isn’t because it’s a comparison against a weak pandemic number. The current level is about fifty percent higher than it was just before the pandemic hit. That’s insane.
IMPLICATIONS:Inflation is high, and it seems as if it could be staying at greatly elevated levels for an extended period. The back-up in supplies is likely to get worse as we are into the holiday season. With labor shortages abounding, it is hard to see how the ports will be cleared anytime soon. Seriously, when you hear reports that firms are hiring helicopters to ferry containers from ships, and major retailers are chartering their own ships, you know the supply chain is broken badly. All you have to do is going into any store and see the lack of inventory on the shelves to convince you that we have a really big problem. We have a cycle going: Lack of supply, strong demand, rising wages, more demand, not enough supply, and higher prices.Strangely some people are calling the current environment “stagflation”. Huh? This is the downside of supply-side economics.Demand is strong and with the problems being are on the supply side, any resulting economic moderation will have nothing to do with economic stagnation. It’s not even wage-price inflation, though that is part of it. It’s supply-price inflation, which I think is something new. And monetary and fiscal policy cannot do anything about it. So, buckle up. The next year should be very interesting and I truly hope Mr. Powell starts facing reality soon.