INFLATION PANIC! But why? The numbers leveled off for Q3

The last two days, I've looked at the Producer and Consumer Price Index reports, and am really confused why I keep seeing articles from Wall Streeters and pundits that sound like this.

Inflation increased 0.4% in September, more than expected despite rate hikes https://t.co/xAn7g8weeT #markets #inflation #cpi

— Karen Tso (@cnbcKaren) October 13, 2022

Back-to-back 75bps hikes on tap? Fed funds futures now pricing in a near-certainty of another hefty 75-basis-points rate hike for the Nov 2 FOMC meeting. Notably, the probability of a repeat performance for the Dec 14 meeting is now ~67%: pic.twitter.com/5mPCGqPfto

— James Picerno (@jpicerno) October 13, 2022

Both indexes rose 0.4% for September, which is around a 5% annual rate. Not great, but not something that would cause great changes in the economy either. And on the producer side, prices went down at some stages of production, continuing a trend of the last 2 months.

On the consumer side, a big cuplrit for the rise was shelter, which takes up about 1/3 of the total CPI index,and a higher proportion of the "core" CPI.

The index for all items less food and energy rose 0.6 percent in September, following an identical increase in August. The shelter index continued to increase, rising 0.7 percent in September, also the same as in August. The rent index rose 0.8 percent in September. The owners’ equivalent rent index also increased 0.8 percent over the month, the largest monthly increase in that index since June 1990.

And that sucks if you're a renter looking for places, no doubt. But the CPI ignores how tens of millions of America with locked-in low-interest mortgafges aren't paying anything extra for their houses these days. Sure, that may be a statement coming from a point of privilege, but let's also acknowledge that these inflationary effects are widely varied depending on what situation you are in.

And while lower-income people are more likely to rent and feel the effects of inflation that way, let's also not forget that eveyrday line workers have been the ones seeing higher wage increases in 2022. And for the third straight month, regular line workers saw their wage increases outpace inflation.

Real average hourly earnings for production and nonsupervisory employees increased 0.1 percent from August to September, seasonally adjusted. This result stems from a 0.4-percent increase in average hourly earnings combined with an increase of 0.3 percent in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Real average weekly earnings increased 0.4 percent over the month due to the change in real average hourly earnings being combined with an increase of 0.3 percent in average weekly hours.

There's more to an economy than the price of gas in my latest cartoon for the @WiStateJournal @JoeBiden #Gas#economyhttps://t.co/dN88LgQUDP

— Phil Hands (@PhilHands) October 11, 2022

I then saw this article from CBS Marketwatch's Rex Nutting that stated what I've been thinking throughout the last couple of months.

Rex Nutting: The best measure shows inflation has now fallen to the Fed’s target https://t.co/nrmwDTnqCL

— MarketWatch (@MarketWatch) October 13, 2022

If we looked just at the year-on-year increase in the CPI, we might agree with the Federal Reserve’s assessment that there hasn’t been an “appreciable decline” in bringing inflation down to the 2% target.

The year-on-year perspective is good for seeing how far we’ve come, but it’s not so good at predicting where inflation is going, because it’s essentially a backward-looking measure. It gives equal weight to inflation in September 2021 and inflation in September 2022. Yet the inflation rate from a year ago has little bearing on what the inflation rate will be going forward....

The monthly data seem awfully noisy. So let’s find the underlying trend by taking a three-month average to smooth out the bumps. In this case, the data say that the CPI rose at a 2% annual rate from July through through September, down from 11% in June and 11.3% in March, which was a 41-year high.

This perspective answers the question: What’s happening with inflation yesterday, today and tomorrow?

If we look at the three-month smoothed annual rate, we might disagree with the Fed about how much progress they’ve made. Going from 11.3% in March when the Fed started raising interest rates to 2% now isn’t nothing. It looks like — dare we say it? — progress.

I'll go along with Nutting's point and add this one. Yes, it's a pain to a lot of us that prices went up as they did starting in Summer 2021 and lasting through June of this year. But why does the Fed care more about that, and not what is happening now in America. And why are they fighting the last war instead of looking at what their recent and future moves will do to everyday Americans in Q4 2022 and all of 2023?

And maybe Wall Street traders also realized that this INFLATION PANIC wasn't being based on the reality in October 2022. Because take a look at the ride the DOW Jones has been on today.

These guys don't know what's going on, probably because none of them have lived through a pro-worker time where inflation might stay at 4-6% for a while (THE HORROR!). And they really don't like that everyday people are finally getting an upper handm which is why they're hoping for GOPs to win in November and smack down workers into compliance with a bad economy and austerity.

Let's not have that happen, shall we?