Thoughts on latest inflation numbers


Inflation only gets intermittent attention when the U.S. Bureau of Labor Statistics releases updated numbers. This morning, we got our last batch of numbers for 2022, indicating that inflation was at 7.1 percent in November — another very modest improvement, but still close to the highest rate in four decades. Once again, Joe Biden and company will celebrate this news as a great personal victory.

From December 2011 to April 2021, the U.S. Consumer Price Index — what most people think of as the inflation rate — was less than 3 percent. A few months here and there the rate would reach 2.8 percent or 2.9 percent, but those bursts were short-lived. Annually, the CPI averaged anywhere from 0.1 percent to 2.4 percent, and for a couple of months in 2015, it was actually negative. Whatever else you want to say about the state of the economy during the later stages of the Obama era and into the Trump years, inflation was not a major problem facing American consumers.

This morning, the CPI came in at 7.1 percent. Last month, the figure came in at 7.7 percent. By the standards of that miserable stretch from March to September, when the CPI came in at above 8 percent or higher, today’s numbers are an improvement. But for squeezed American consumers marveling at prices they never thought they would see for holiday meals and spending more to buy less during their Christmas shopping, this is relief so modest that it can barely be felt — if it can be felt at all. Egg prices are 43 percent higher than they were a year ago. New-vehicle prices hit a new record. Home sales are coming down, but that’s because sales keep tumbling lower each month.

Inflation compares the prices of today — well, last month — to the prices of twelve months earlier. But the surge in prices started in spring 2021, so today’s prices are being compared to the already-higher prices of November 2021. In other words, we’re well into our second year of inflation, which makes those slight reductions in the rate of increase look even more modest.

President Joe Biden has two kinds of statements that he issues when the monthly CPI numbers arrive. When the number is so bad that there’s no way to spin it as any sort of progress, such as in June, he will first dispute the accuracy of the numbers: “Today’s headline inflation reading is unacceptably high, it is also out-of-date.” This is a dumb argument because it takes something obvious and insinuates that the same measurement that has always been used is now suddenly too inaccurate to be illustrative. Yes, it takes time — about a week and change — to collect and calculate the numbers. The national inflation rate isn’t going to change dramatically within a two-week span.

Then Biden — or, more likely, his economic and press teams — will look deeper into the report to find any figure that showed any sign of improvement: “Importantly, today’s report shows that what economists call annual ‘core inflation’ came down for the third month in a row and is the first month since last year where the annual ‘core’ inflation rate is below six percent.” Did you feel a sudden surge of relief from high prices in the month of June? No? Neither did anyone else.

Biden’s other kind of statement comes when the CPI numbers go down at all. In that scenario, Biden will spike the football and insist that he deserves the credit for what is happening, like he did for October’s numbers: “Today’s report shows that we are making progress on bringing inflation down, without giving up all of the progress we have made on economic growth and job creation. My economic plan is showing results, and the American people can see that we are facing global economic challenges from a position of strength.”

Biden did that for an inflation rate of 7.7 percent. Before this year, that figure would still be the highest in 40 years. The CPI ticking down a few tenths of a percentage point represents very, very modest progress in bringing down the rate of inflation. No one can feel any of that at the grocery store or car dealership or Home Depot.

Gas prices are indeed down, and lower than a year ago. AAA puts the national average at $3.24 per gallon for regular gas; the Energy Information Association puts it at $3.23. I would note that $3.23 is lower than one year ago when it was $3.31 (which the New York Times celebrated). But that same figure was significantly lower in previous years. In the second week of December 2020, when the country was still dealing with Covid-19, the national average was $2.15. A year before that, the average was $2.56. Back on this week in 2018, the average was $2.42; in 2017, the average was $2.48; in 2016, it was $2.23; and in 2015, it was $2.03.

So yes, a national average of $3.23 is better than the first year of the Biden presidency, but it isn’t better than the Trump years or the late Obama years, and it’s still pretty darn high by historical standards. Keep in mind, December is traditionally a month where Americans don’t use much gas, other than holiday trips. Americans’ driving usually hits its lowest point in February, steadily increases and peaks right before Memorial Day, and then begins to slide back down after Labor Day.

You recognize the theme here, right? The economic data coming in keep pointing to really modest improvements, and this country is full of people who want you to believe that the problem is well along the way to being solved.

The current conventional wisdom is that inflation will continue to decline, and that it will have cooled by the end of 2023 — meaning Americans will have endured between two-and-a-half and three years of absolutely brutal price increases before all is said and done. Give the Times credit for recognizing that economists have earned ample servings of humble pie in the past year:

At this time last year, economists were predicting that inflation would swiftly fade in 2022 as supply chain issues cleared, consumers shifted from goods to services spending and pandemic relief waned. They are now forecasting the same thing for 2023, citing many of the same reasons.

But as consumers know, predictions of a big inflation moderation this year were wrong. While price increases have started to slow slightly, they are still hovering near four-decade highs.

There is a curious line in that Times article: “The challenge with forecasting inflation is that while it is possible to make guesses about specific categories like rent, many inflation drivers come as a surprise. Forecasters in 2021 could not have guessed that Russia would invade Ukraine in early 2022, sharply pushing up food and fuel prices.”

Eh . . . really? By early November 2021, Secretary of State Antony Blinken was publicly stating that Russia’s intentions behind its latest military buildup along Ukraine’s eastern border were unclear, but that Moscow would be making a “serious mistake” by committing new aggression against its embattled neighbor. But a month later, the Washington Post ran a story with the headline: “Russia planning massive military offensive against Ukraine involving 175,000 troops, U.S. intelligence warns.”

By late 2021, the Russian invasion may not have looked like an absolute certainty . . . but you don’t move tens of thousands of troops and tons of military equipment to the border of a neighboring country for a picnic.

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