Wall Street says inflation tamer. But it's not, and wages aren't rising either

With the recently rise gas and other prices going along with a rise in interest rates in recent months, yesterday's report on the Consumer Price Index carried extra interest for today, And Wall Street looked at the toplines of the CPI report and said, “that’s not so bad.”

The Dow Jones Industrial Average was on track for sixth day of gains and the S&P 500 edged past a key technical level after tepid inflation data cooled worries of faster interest rate hikes.

A Labor Department report showed its consumer price index rose 0.2 percent, below the economists' expectation of 0.3 percent, as rising costs for gasoline and rental accommodation were tempered by a moderation in healthcare prices.

"This data lends to the argument that the Fed can normalize patiently, but the flip side is that prolonged policy accommodation has yet failed to accelerate inflation," Peter Cecchini, chief market strategist at Cantor Fitzgerald in New York, wrote in a note….

Investors have been worried about a build up in price pressures and the pace of interest rate hikes, especially after a recent reading on inflation crossed the Federal Reserve's 2-percent target.

Then I looked inside the actual report, and said “What are the Wall Streeters looking at?” Because inflation continued to be on the rise in April, especially in some key areas, and is likely to get higher in the near future.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in April on a seasonally adjusted basis after falling 0.1 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.5 percent before seasonal adjustment.

The indexes for gasoline and shelter were the largest factors in the seasonally adjusted increase in the all items index, although the food index increased as well. The gasoline index increased 3.0 percent, more than offsetting declines in other energy component indexes and led to a 1.4-percent rise in the energy index. The food index rose 0.3 percent, with the food at home index rising 0.3 percent and the index for food away from home increasing 0.2 percent…

The all items index rose 2.5 percent for the 12 months ending April; this figure has been mostly trending upward since it was 1.6 percent for the period ending June 2017. The index for all items less food and energy rose 2.1 percent for the 12 months ending April. The food index increased 1.4 percent, and the energy index rose 7.9 percent.

That 2.5% year-over-year increase (OK, 2.45%) in overall inflation is the largest in 14 months. A 3.4% increase in shelter for the last 12 is months is the largest since it was 3.5% 12 months ago (which equals 7% total over the last 2 years), and the 12-month jump of 13.5% in gasoline is the largest since last November. Add in the 0.3% rise in food prices for April (the largest one-month increase in over a year), and it seems that the expenses that poorer people pay more of are the ones that are going up the most.

I also note that while gasoline was listed as going up 3.0% on a “seasonally adjusted” basis, the unadjusted price at the pump went up twice that amount, at 6.2%. Anyone that’s seen a gas station sign in the last 10 days can tell you May’s figures will higher, and while some will be deflated away again, not all of it will. And gas won’t be coming down soon, as gasoline and oil futures have taken significant leaps in the last month due to Commander Cuckoo Bananas in the White House and his clueless idiocy on Iran and the rest of the Middle East.

I also caught this tweet from our Wisconsin-based Speaker of the House.

✅ Lowest unemployment level since 2000
✅ Jobless claims near a 48-year low
✅ #SmallBiz optimism at record highs
✅ Business investment up 24% over the last year
✅ Increased wages

Following #TaxReform, the good economic news is everywhere you look. pic.twitter.com/Dy8gBRmJjz

— Paul Ryan (@SpeakerRyan) May 10, 2018

We know unemployment only dropped due to people leaving the work force in each of the last two months, as the rate of hiring hasn’t really changed in the last 3 years. And “wages going up”? Not after you account for inflation, which the real earnings report did today.

Real average hourly earnings for all employees were unchanged from March to April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from a 0.1-percent increase in average hourly earnings being offset by a 0.2-percent increase in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings decreased 0.1 percent over the month due to no change in both real average hourly earnings and the average workweek. (translation: real hourly wages actually went down, but by a fraction of a cent)

Real average hourly earnings increased 0.2 percent, seasonally adjusted, from April 2017 to April 2018. The increase in real average hourly earnings combined with a 0.3-percent increase in the average workweek resulted in a 0.4-percent increase in real average weekly earnings over this period.

That inflation-adjusted weekly earnings gain adds up to $1.55 a week in 1982 dollars, or about $5 nowadays. Don’t spend all of that windfall in one place, folks!

What’s notable is that on a current-dollar level, the 12-month gain in average hourly wages have been in the same 2.3-2.7% range since November 2015. But the biggest difference is that 12-month inflation has steadily risen in that same time period, from 0.4% in November 2015 to 2.45% today.



So people are barely treading water in the Age of Trump compared to the gains they were making at the end of the Obama presidency. And do you think this “wage vs inflation” picture is going to get any better in the next 6 months?

So I’m perplexed by the rally in the stock market over the last week. Allegedly it’s based on a thought that inflation is being tamed, which’ll help corporate profits and keep interest rates down. But the actual data doesn’t say that at all, and it seems likely that the year-over-year CPI will reach 3% year-over-year in the next couple of months.

3% inflation is something we haven’t seen in more than 6 years, and unless wage growth breaks out of the mediocre range of mid-2% that it’s been in, there are a lot of Americans that will fall behind. And sorry Pau-lie, but that $1.50 in tax cuts won’t be nearly enough to help them.

Wonder what those voters will be thinking as they head to the polls in November, as they realize that despite an allegedly “thriving economy”, rising costs and stagnant wages mean they are not better off than they were in November 2016, and likely to get worse in the near future due to Paul Ryan’s and Donald Trump’s tax scam in DC.