Thursday, July 12, 2018

Yet again, inflation is higher than wage growth.

Given the concerns about costs of products in light of trade wars and rising prices at the pump and for housing, today’s Consumer Price Index report for June was sure to get some interest.

The financial media claimed that the 0.1% in June was lower than expectations, but it didn’t seem to stay low for typical reasons.
U.S. consumer prices rose less than expected in June amid falling utility prices and a record decline in hotel costs, even as the broader trend showed a pickup in annual inflation that may keep the Federal Reserve on track for gradual interest-rate hikes.

The consumer price index rose 0.1 percent from the prior month after a 0.2 percent gain in May, while the gauge excluding food and energy costs rose 0.2 percent, a Labor Department report showed Thursday. The Bloomberg survey median called for a 0.2 percent gain in both the main and core indexes.

The overall gauge rose 2.9 percent in the 12 months through June, the most since 2012, while the core gauge climbed 2.3 percent, the biggest gain since January 2017. Both matched economists’ estimates.
The highest inflation in 6 years doesn’t sound that great to me, and it could have been even higher in June except for a drop in prices for many household items. Clothes, jewelry, shoes, TVs, dishes and home decorations were among the products that had notable drops this month, and while cutting prices while everything else costs more may help your shopping, it is not a good sign for an already-hurting retail sector, and it makes me wonder if more store closings are coming.

But even worse news came with the real wages survey that accompanies the CPI figures, This report combines CPI with the numbers released from last week’s jobs report, and even in a time of allegedly full employment, the average American worker is not ending up better off.
Real average hourly earnings for all employees increased 0.1 percent from May to June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from a 0.2-percent increase in average hourly earnings combined with a 0.1-percent increase in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings increased 0.1 percent over the month due to the change in real average hourly earnings combined with no change to the average workweek.

Real average hourly earnings combined with a 0.3-percent increase in the average workweek resulted in a 0.2-percent increase in real average weekly earnings over this period.

Real average hourly earnings were unchanged, seasonally adjusted, from June 2017 to June 2018. Real average hourly earnings combined with a 0.3-percent increase in the average workweek resulted in a 0.2-percent increase in real average weekly earnings over this period.
I'm not sure how a 2.7% increase in wages vs a 2.9% in prices leads to 0% change (maybe someone could fill me in), but this continues a US trend of nominal wage growth staying stuck below 3% while inflation has risen to hit that same level.

It’s even worse for everyday “non-supervisory” workers, who have had hourly wages decline by 0.2% in the last 2 years. Not exactly what the average blue-collar MAGA likely had in mind, was it? (SUCKERS!)

Remember, these rising inflation and stagnant wage figures in June come before the seemingly inevitable layoffs and supply disruptions from the reckless nature of the trade wars our president has decided on. Now, that might keep inflation under control as dairy and soybean prices collapse (oddly, dairy and cheese prices were up in June), but that’s not a good thing either if you work in those industries.

While June’s inflation report had enough intriguing numbers, the real “fun” might pick up in the next couple of months, given what we’ve already seen for gas and crop futures. And it makes me wonder if (as the financial news report indicated) more increases short-term interest rates are in order to try to head this inflation off. And then see which bubbles pop as a result.

Like a lot of things in this economy, inflation doesn’t seem like it'll stay at the relatively stable status quo for much longer.


  1. One other interesting point about this is mentioned as part of UW's Menzie Chinn's timeline of when Trump tariffs take effect.

    One of the few items that were already the subject of tariffs as of June are washing machines. And the price of washing machines jumped more than 13% in June. Makes you wonder what happens by August, when a lot more of the tariffs are put in place.

  2. All the better to keep us in debt and paying that sweet sweet interest!