Thursday, January 12, 2023

INFLATION WATCH gives another month of good numbers. For both shoppers and workers

Serious question – is it time to start cancelling INFLATION WATCH?
The consumer price index, which measures the cost of a broad basket of goods and services, fell 0.1% for the month, in line with the Dow Jones estimate. That equated to the largest month-over-month decrease since April 2020, as much of the country was in lockdown to combat Covid.

Even with the decline, headline CPI rose 6.5% from a year ago, highlighting the persistent burden that the rising cost of living has placed on U.S. households. However, that was the smallest annual increase since October 2021.

Excluding volatile food and energy prices, so-called core CPI rose 0.3%, also meeting expectations. Core was up 5.7% from a year ago, once again in line.

A steep drop in gasoline was responsible for most of the monthly decline. Prices at the pump tumbled 9.4% for the month and are now down 1.5% from a year ago after surging past $5 a gallon in mid-2022.
It’s almost like that Spring and Summer spike in gasoline prices was BS to begin with, eh?

UW Professor Menzie Chinn has a couple of good visualizations of the inflation situation in Econbrowser. Ignore the misspelling in this chart, and note how the rapid runup in the first 6 months of 2022 has plateaued, with the annual rate of inflation since June running below the Fed’s preferred mark of 2%.

You can also see that core inflation also is diminishing, staying below a 6% year-long rate over 3 months for the first time in more than a year.

And while inflation for consumers faded in the 2nd half of 2022, wage growth continued near the same nominal rate. Which means that some of the steep losses in real wages of early 2022 have now reversed, especially for non-supervisory (ie. Everyday line) workers, who have had hourly wages match or exceed inflation for 6 straight months.

That being said, workers still fell behind in 2022, and it’s complicated by the fact that the average work week also shrunk last year.
Real average hourly earnings decreased 1.7 percent, seasonally adjusted, from December 2021 to December 2022. The change in real average hourly earnings combined with a decrease of 1.4 percent in the average workweek resulted in a 3.1-percent decrease in real average weekly earnings over this period….

From December 2021 to December 2022, real average hourly earnings decreased 1.1 percent, seasonally adjusted. The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 2.0-percent decrease in real average weekly earnings over this period.
So there’s still a significant profiteering price-hike hole that most workers need to recover from in 2023, which also shows that past inflation was not due to a wage-price spiral, and yet Jerome Powell and other Fed officials keep saying they need to see more evidence of weakness in the labor market before they entirely back off of rate hikes.

With new unemployment claims still lingering just over 200,000 a week, that won’t happen for a while. So that means we’re going to have to continue with INFLATION WATCH for the next few months, at least until the Fed gets out of their Bubble and realizes that the bigger economic concern should be in keeping Americans on the job, and not screwing up a good situation

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