The June 2023 CPI report would mark one year since inflation peaked in June 2022, with year-over-year price increases exceeding 9%. And things are quite different now vs when gas was $5 a gallon a year ago.
That's pretty good news to me, and you can see how the year-over-year CPI totals have steadily declined over the last 12 months. In addition, 3 of the last 4 months have had CPI increases of 0.1% or 0.2%, and it translates to an annual rate of increase of around 2.5% since February.
Look, I get that the huge increase in prices between June 2021 and June 2022 was something that stressed a lot of people and annoyed a lot more. But some of the losses in real wages have been erased over the last year, as average hourly earnings have continued to climb at a consistent pace while CPI has faded downwards.
And the figure of “average” hourly wages for all workers obscures how lower-wage jobs have been seeing higher increases over the last year (transportation/warehousing up 6.0% and leisure/hospitality up 5.2% vs 4.7% for all jobs, as an example). Non-supervisory employees in total have had inflation-adjusted increases in hourly pay that virtually doubles the inflation-adjusted increase in average hourly wages for all private sector jobs in America.
And let’s not forget that in the 15 months before June 2021, there were sizable increases in income from stimulus checks, expanded unemployment benefits and other COVID-era aids, as well as a small bump in inflation- adjusted wages for those staying in jobs. While US inflation-adjusted disposable income may not be back at 2021 levels, it is still 4% above where it was at the end of 2019.
We're not all the way back from the inflation-adjusted losses on the wages side, but we have gotten back above pre-pandemic levels.
So if workers are now making up for the losses from the transitory inflation of 2021 and the first half of 2022, and inflation is now running at an annual rate of 3% or below, why are central bankers talking about raising interest rates again? How do we end up at a 5.5% Fed Funds rate when CPI is running at about half that level?
In June 2019 we had also had unemployment at 3.6%, were adding 150,000 new jobs a month, and the Fed Funds rate was half of where it is today. Then President-Trump threw a fit, claiming rates were too high (because he feared recession before the 2020 election). And the Fed backed down, cutting rates 3 times in 2019, before the pandemic even hit.
Inflation feels under control, jobs are still being gained but growth is now moderate, and where is there any “overheating” to fear about. Because workers are getting an adequate share of the economy’s gains for one of the few times in the last 20 years, and it’s preventing corporations from adding on to what was already record profits?
It’s well past time President Biden and Dems do the same, before Republican Jerome Powell and other Fed officials hurt their chances in 2024 by chasing an inflation that doesn’t exist in most of Real America, and triggering a job-losing recession that doesn’t need to happen.
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