Inflation picks up, and the worries will rise with the prices

Inflation Watch may have already been happening, but today’s CPI report has definitely made a lot more people tune into that throwback show.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in October on a seasonally adjusted basis after rising 0.4 percent in September, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 6.2 percent before seasonal adjustment.

The monthly all items seasonally adjusted increase was broad-based, with increases in the indexes for energy, shelter, food, used cars and trucks, and new vehicles among the larger contributors. The energy index rose 4.8 percent over the month, as the gasoline index increased 6.1 percent and the other major energy component indexes also rose. The food index increased 0.9 percent as the index for food at home rose 1.0 percent.

The index for all items less food and energy rose 0.6 percent in October after increasing 0.2 percent in September. Most component indexes increased over the month. Along with shelter, used cars and trucks, and new vehicles, the indexes for medical care, for household furnishing and operations, and for recreation all increased in October. The indexes for airline fares and for alcoholic beverages were among the few to decline over the month….

The all items index rose 6.2 percent for the 12 months ending October, the largest 12-month increase since the period ending November 1990. The index for all items less food and energy rose 4.6 percent over the last 12 months, the largest 12-month increase since the period ending August 1991. The energy index rose 30.0 percent over the last 12 months, and the food index increased 5.3 percent.

While some of the 12-month increase is related to the fact we were still in a COVID-depressed economy a year ago, a rise of 0.9% in one month is a lot, and comes after three months of calmer rises in prices.

We know oil and gas prices are significantly up from the COVID-induced low levels they were in for most of 2020, and they now have gone above their 2018 peaks. But the Energy Information Administration notes that we are still not close to the tops reached in the first half of the 2010s, or the huge Bubble in prices that happened in Summer 2008. And we’re also well below the inflation-adjusted gas prices (shown in blue) that plagued the US from 1979 to 1982.

Maybe I’m also not worrying as much about the gas price jump because I haven’t seen much of a price spike here in Wisconsin – most stations around Madison are at or below $3/gallon. US gasoline usage is back near 2019 levels (which surprises me), and supply is lower than its been in a couple of years, so some rise in prices seems justified. But gasoline supply not very different than what we had a couple of years ago, and in other years.

So I don't see any long-term concerns for the gas prices, especialy since more alternatives to gasoline usage are now available when you're driving. The food prices are more concerning to me. It’s often been a wack-a-mole on what’s going up in a given month, but the Bureau of Labor Statistics says it’s meat prices that are seeing the biggest increases.

The food index increased 0.9 percent in October, the same increase as in September. The food at home index increased 1.0 percent over the month as all six major grocery store food group indexes continued to rise. The index for meats, poultry, fish, and eggs continued to rise sharply, increasing 1.7 percent following a 2.2-percent increase in September. The index for beef rose 3.1 percent over the month…..

The food at home index rose 5.4 percent over the past 12 months as all of the six major grocery store food group indexes increased over the period. The index for meats, poultry, fish, and eggs increased 11.9 percent, with the index for beef rising 20.1 percent and the index for pork rising 14.1 percent, its largest 12-month increase since the period ending December 1990. The other major grocery store food group indexes also increased over the last 12 months with increases ranging from 1.8 percent (dairy and related products) to 4.5 percent (nonalcoholic beverages).

So dairy farmers can’t even get an advantage in a time of inflation, because those prices have stayed relatively flat? Ugh.

The high inflation numbers also blunt the good news on wage increases in last week’s jobs report. The 0.4% increase in average hourly wages for October and 4.9% increase year-over-year now translates into a decline of real wages of -0.5% in October and -1.2% over the last 12 months. Those topline numbers would seem like a warning that demand is going to slow down soon.

However, it’s worth knowing that the wage changes are widely different depending on what job you’re in. And it’s the lower end of the wage scale that’s been seeing the largest increases in recent months, as UW’s Menzie Chinn points out.

Five Measures of Real Average Hourly Earnings in Accommodation & Food Services (estimates thru October). So if you're concerned about those in low wage jobs, take a look https://t.co/nE6Pb5Gd0B pic.twitter.com/9JnXI6tkH2

— Menzie Chinn (@menzie_chinn) November 9, 2021

The average hourly wage in education/health services has also been mostly keeping up with price rises, up 5.9% over the last 12 months and 1.3% since August (deservedly so). But higher-paid jobs in Information, Utilities, Construction and Manufacturing haven’t been as fortunate.

12-month change in average hourly wages
12 month CPI +6.2%
Construction +4.7%
Manufacturing +4.5%
Utilities +2.0%
Information -0.5%

So you can see where people are feeling stressed, even if jobs are coming back. And why there were so many strikes and other job actions taken in recent months, because someone’s pulling in big money with these higher prices, but it’s not so much for the workers in those industries.

> And if you thought inflation was being scare-mongered too much before today, you ain’t seen anything yet after this October CPI report. This may well take direct action by the Biden Administration, from calling up Guard members to deliver needed supplies, to perhaps releasing the Strategic Petroleum Reserve and limiting exports of American oil to get gas prices to retreat some. And maybe we need to have some more of our supplies made in America, given that we are already taking in record imports with a rising trade deficit.

Also, perhaps it’s time for the Federal Reserve to stop its easy money policy and get interest rates back toward a level where some might save funds instead of being pushed into gambling them in stocks, homes and other assets.

Add in a little fiscal restraint through higher taxes on the rich and corporate (and perhaps some trust-busting and oversight of speculation if you want to get frisky), and we can still make 2021’s increase in inflation as fleeting a memory as the increase in prices in the early-‘90s that no one remembers, but was the last time we saw things going up this fast.

But you know what's NOT causing this inflation? The US's sizable debt, because while the yield on the 10-year note rose today, that debt is still hovering below 1.6% and is less than what the benchmark debt was fetching when the March stimulus was signed into law. And the value of the US dollar has actually strengthened in the last 5 months. So it seems like monetary pullbacks, some fiscal limitations on the rich and getting regular supply back on track is the key to stopping this period of high inflation, more than trying to limit demand.

That being said, Dems should recognize that the moderation of inflation needs to start soon, because the memes are already out there, and while some of the inflation is for the "good reason" of higher wages, it's still something that's likely to be worrying an increasing amount of Americans. In no small part because Republicans and their allies in the media will talk incessantly about it to try to win the 2022 midterms.