(What’s Left of) Our Economy: More Evidence that Pay Really is Worsening U.S. Inflation

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ECI, Employment Cost Index, Federal Reserve, inflation, Labor Department, labor productivity, multifactor productivity, productivity, recession, wages, workers, {What's Left of) Our Economy

Back in February, I wrote that although U.S. workers’ hourly wages were rising more slowly than the standard measure of consumer prices (the Consumer Price Index, or CPI), and therefore on that basis couldn’t be blamed for the recent, historically high inflation, there was one reason to be worried about the last few years’ healthy pay hikes: Such pay was rising faster than worker productivity.

I explained that this trend inevitably fueled inflation because “when businesses are in situations where wages are rising but their operations are becoming more efficient at a faster rate, they can maintain and even increase profits without passing higher costs on to their customers. When productivity is rising more slowly than inflation, this option isn’t available – or not nearly as readily.”

And more important than my views on the subject, these concerns have been expressed by Jerome Powell, Chairman of the Federal Reserve, the U.S. central bank that has the federal government’s main inflation-fighting responsibilities.

So it’s discouraging to report that new government data on both pay and productivity have come out in the last two weeks, and they make clear that the pay-productivity gap has just been widening faster than ever.

The pay data come from the Labor Department’s latest Employment Cost Index (ECI), which tracks not only hourly wages but salaries and benefits, while the productivity figures come from Labor’s new release on labor productivity, which measures how much output a single worker turns out in a single hour. And conveniently, both releases take the story through the first quarter of this year.

The results? From the fourth quarter of last year through this year’s first quarter, total compensation for all private sector workers, the ECI increased by 1.42 percent, while labor productivity for non-farm businesses (the category most closely followed, and basically identical with the private sector) fell by 1.93 percent. That last number was labor productivity’s worst such performance since the third quarter of 1947. (As RealityChek regulars know, I focus on private sector workers because their pay levels largely reflect market forces, not politicians’ decisions, and consequently reveal more about the labor picture’s fundamentals.)  

The year-on-year statistics aren’t much better – if at all. Between the first quarter of last year and the first quarter of this year, the ECI for the private sector grew by 4.75 percent, but labor productivity dipped by 0.62 percent.

And since the U.S. economy began recovering from the first wave of the CCP Virus pandemic, during the third quarter of 2020, the private sector ECI is up by 6.61 percent, while labor productivity is down by 0.78 percent.

As also known by RealityChek readers, labor productivity isn’t the economy’s only measure of efficiency. Multifactor productivity is a broader, and therefore presumably more useful gauge. It’s not as easy to work with because its results only come out annually, and the latest only take the story up to the end of last year.

The picture is decidedly more encouraging – at least recently. From 2020-2021, multifactor productivity for non-farm businesses improved by 3.17 percent. But it still wasn’t good relatively speaking, since from the fourth quarter of 2020 through the fourth quarter of 2021, the private sector ECI increased by 4.38 percent.

Worse, from 2001 (when the Labor Department began the ECI) to last year, pay b that gauge was up 74 percent while non-farm business multifactor productivity had advanced by a mere 16.46 percent.  Therefore, clearly the recent pay and productivity numbers don’t simply stem from pandemic-related distortions of the economy. 

To repeat important points from last February’s post, the productivity lag doesn’t mean that U.S. workers overall don’t deserve nice-sized raises and better benefits, and it certainly doesn’t mean that they’re solely or largely to blame even for poor labor productivity growth. After all, managers are paid as handsomely as they are fundamentally to figure out how to make their employees more productive. Also, productivity is a barometer of economic performance that’s unusually difficult to determine precisely.

But the new figures do strengthen the case that labor costs bear significant responsibility for boosting inflation, and that a major fear surrounding overheated price increases – that inflation acquires powerful momentum as surging prices lead to big wage hike demands and vice versa, and create a spiralling effect that’s excuciatingly difficult to end without the Fed throwing the economy into recession. Just as depressingly, the new pay and productivity figures also strengthen the case that, unless the economy becomes a lot more productive very quickly, the sooner this harsh medicine is administered, the better for everyone in the long run.

(What’s Left of) Our Economy: A New Sign That Inflation Will Long Stay Lofty

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consumer inflation, consumer price index, cost of living, CPI, Federal Reserve, inflation, Labor Department, monetary policy, PPI, Producer Price Index, recession, wholesale inflation, {What's Left of) Our Economy

Yesterday’s RealityChek post showed that the baseline effect was no longer a prime driving force behind the historically high consumer inflation rates with which Americans have struggled. That is, the new Labor Department data for the Consumer Price Index (CPI) revealed that unlike its monthly predecessors, the March annual inflation rate wasn’t so strong largely because prices were catching up from having risen so weakly the year before. Instead, because March, 2020-21 CPI was already getting pretty warm – because the U.S. economy had continued recovering (unevenly) from the deep spring, 2020 downturn – the March, 2021-22 inflation result made clear that worrisome price increases had acquired a momentum of their own.

This morning came both another sign that the baseline excuse for high inflation has run its course, and that rapid price increases could well continue for many more months – the Labor Department’s March inflation report for wholesale prices. As opposed to the CPI, which measures what business charge consumers, the so-called Producer Price Index (PPI) gauges what businesses themselves pay for the goods and services they need in order to turn out whatever they sell to individuals and households.

And because the new PPI makes clear that the baseline excuse can no longer be used for such wholesale inflation either, it augurs more torrid consumer price hikes, too – since businesses naturally try to pass on their higher costs to their final customers, and often succeed. Moreover, if you look at the annual inflation increases for recent months, you see that the baseline effect for the PPI ended in February.

The table below presents in the left column the annual PPI increases for each month from January, 2021 through this March, and in the right column, the same numbers for the previous year 2019-2020. As with the Consumer Price Index, the baseline year for the 2021-22 results is 2020-21.

Jan 2021:         1.60 percent            1.97 percent

Feb 2021:        2.96 percent            1.11 percent

March 2021:   4.15 percent            0.34 percent

April 2021:     6.51 percent           -1.52 percent

May 2021:      6.99 percent           -1.10 percent

June 2021:      7.56 percent            -0.68 percent

July 2021:       7.96 percent            -0.25 percent

Aug 2021:       8.65 percent            -0.25 percent

Sept 2021:       8.78 percent             0.34 percent

Oct 2021:        8.87 percent             0.59 percent

Nov 2021:       9.88 percent             0.85 percent

Dec 2021:       9.99 percent             0.84 percent

Jan 2022:      10.08 percent             1.60 percent

Feb 2022:     10.27 percent             2.96 percent

March 2022: 11.18 percent             4.15 percent

As the table indicates, the baseline effect for producer prices began earlier than that for consumer prices, was more dramatic, and lasted longer. Between January and August, 2020, such inflation plummeted from 1.97 percent to -0.25 percent. And yes, you read that last number right. Inflation became outright deflation, and producer prices actually fell on year for five straight months. The last time anything close to this happened was “never” (though, to be fair, the data for this measure of PPI, which is called final demand for both goods and servies, only go back to 2009).

So this dramatic descent into deflation deserves much of the blame for the surge in annual wholesale price inflation between January and August, 2021 – from 1.60 percent to 8.95 percent.

Moreover, 2019-20 annual PPI increases stayed below one percent through December. In January, 2021, the annual rate nearly doubled, to 1.60 percent – signaling that the baseline effect was ending. And its final (for now) demise came the following month, when it jumped to 2.96 percent. Yet during February, 2022, yearly wholesale inflation soared past ten percent. So these price increases obviously entailed much more than a return to normal from unusually low 2020-21 inflation (including those falling prices for nearly half the year). And the more so for this March, since its baseline comparison figure was a whopping 4.15 percent.

These PPI trends and the prolonged high consumer inflation they portend only sharpen the dilemma faced by the Federal Reserve – the only part of the federal government able to act relatively quickly to bring price increases under control. If it tightens monetary policy too dramatically, it could slow economic growth equally dramatically and even bring on a recession. If the central bank is too hesitant, it could still slow growth but leave inflation unacceptably high – a condition called “stagflation.” 

That is, there’s a real prospect that the economy could enter a state it last experienced during the era of disco, streaking, and shag haircuts. But as those of us who lived through it know, economically speaking, this “Seventies Show” was no comedy.        

(What’s Left of) Our Economy: Why Inflation Now Looks More Confounding Than Ever

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baseline effect, Commerce Department, consumer price index, CPI, Federal Reserve, global financial crisis, inflation, Labor Department, monetary policy, moral hazard, PCE, personal consumption expenditures index, recession, {What's Left of) Our Economy

Thanks to the Ukraine War, the challenge of figuring out whether and exactly how greatly inflation-prone the U.S. economy has become – and therefore what to do about it – has become more complicated than ever. In fact, it might have become impossible, at least for the foreseeable future. And the latest evidence comes from the most recent official report on the Federal Reserve’s preferred measure of price changes – the price indexes for personal consumption expenditures (PCE) put out by the Commerce Department.

This quandary matters decisively because the main conflicting views of today’s inflation support two equally conflicting policy responses by Congress and the administration, but mainly by the Fed — which has the authority to put anti-inflation measures into effect faster than the rest of the federal government.

Simply put, let’s suppose that current, and multi-decade record, inflation mainly stems from government policies that injected too much money into the economy, through massive spending, rock-bottom interest rates, or some combination of the two. Then the remedy is starting to “tighten” such policies by raising interest rates further and selling the bonds bought by the Fed through its quantitative easing program, or by cutting federal spending, or some combination of all these. Strengthening this case is the magnitude of this policy support for the economy – which ballooned due to the emergency created by the CCP Virus pandemic that finally seems on the wane for good.

But if today’s inflation stems mainly from one-time shocks to the economy that by definition don’t have staying power (which is why for quite a while, the Fed was calling elevated inflation “transitory”), then such tightening moves either could have little effect whatever on prices, and/or backfire by dramatically slowing growth and even causing a recession.

To date, that’s been my interpretation, with the main one-time shock being the pandemic. First the virus produced abnormally low inflation readings when its spread and the lockdowns and behavioral changes that resulted crashed the economy briefly. The rapid recovery that followed wound up producing abnormally high inflation readings as economic activity – choppily – returned to quasi-normal (the “baseline effect” I keep writing about).

Moreover, that stop-start nature of the recovery – which stemmed from the fluctuations in CCP Virus waves and consequent mandates and business curbs – fouled up global supply chains that led to widespread shortages, and therefore pushed up prices, as companies struggled to figure out future demand for the goods and services they supplied.

Last month, I wrote that the baseline effect seemed to be disappearing for the Labor Department’s inflation measure — the Consumer Price Index, or CPI), and a few weeks later, predicted that it fading for the overall PCE in March and for core PCE in April.

But of course, since then have come more outside shocks – Russia’s invasion of Ukraine, the unexpectedly long conflict that’s followed, and the sanctions- and war-related disruptions in global supplies of fossil fuels and grain from both countries. All these closely related developments are certain to send prices to yet another level, and the effects will be felt throughout the entire economy, since more expensive fuels affect any business that transports its products or uses oil or gas to power its operations. As a result, the distinction drawn by both inflation measures between overall inflation rates and “core” inflation rates (which leave out food and energy prices because they’re so vulnerable to outside shocks) will become inceasingly academic.

So where do the new PCE data fit in? In brief, they show that, only a monthly basis, overall inflation hit 0.6 percent in February, and core inflation came in at 0.4 percent. The former monthly inflation rate hasn’t risen since October, and January’s initially reported 0.6 percent result has been revised down to 0.5 percent. The latter figure, meanwhile, was the lowest since September. So no speed-up in inflation is apparent from these statistics.

The annual figures are where the acceleration can be seen. February’s year-on-year PCE inflation rate of 6.4 percent – the fastest rate since 1982, and a meaningful increase over January’s six percent. In fact, overall annual PCE inflation pierced the Fed’s two percent target last March and have risen every single month since.  Core PCE has followed an almost identical pattern, though at slightly lower absolute levels.

Yet as explained previously, both surging annual PCE inflation rates have much to do with the price increases of 2019-2020 that were pushed down so low by the virus’ arrival that they took more than a year to recover even as the economy bounced back (unevenly, to be sure).

Specifically, in February, 2021, the annual overall PCE inflation rate was only 1.6 percent, and the annual core rate was only 1.5 percent.

As mentioned above, the return of annual inflation rates above the Fed target – in March, 2021 for overall PCE and April for the core – meant that this baseline effect looked set to end soon. But the Ukraine war has upset these calculations.

As a result, the big question facing the Fed now is whether inflation – whatever its causes – has become so high, and could last so long, that it needs to be reduced significantly even at the risk of triggering recession. That seems to be the central bank’s stance right now, but color me skeptical. After all, slowing growth to a near-halt during an election year would look like an awfully political move, and one I have difficulty believing would be taken by an institution that touts itself as resolutely non-political.

BTW, as if all this wasn’t bewildering enough, there’s a school of thought that supports major Fed tightening even if recession does result – and has supported it for many years. It holds that the super-low interest rates of recent decades have dangerously distorted the economy and indeed sapped its productivity by creating “moral hazard” – incentivizing foolish and indeed wasteful investments by reducing the costs of failure, and leaving less capital over for spending that fosters greater efficiency and technological progress.

I’ve long found these arguments compelling, especially since the global financial crisis of 2007-09 made the dangers of such moral hazard clear. But there’s no sign of concern about this problem anywhere in Washington. The focus there is — somehow — coping with inflation. The next statistics will be out on Tuesday, and the only certainty is that they won’t make the task look any easier.         

(What’s Left of) Our Economy: Pro-Immigration Labor Shortage Claims Keep Going Up as Real Wages Keep Going Down

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compensation, Employment Cost Index, immigrants, Immigration, inflation, inflation-adjusted wages, Labor Department, labor shortage, productivity, wages, Washington Post, workers, {What's Left of) Our Economy

It’s as if the Open Borders Lobby – both its conservative and liberal wings – has recently decided that it’s really had enough of labor market tightness that’s due to reduced immigration, and that’s also giving so many of America’s workers a long-needed pay raise. So it’s been re-upping the pressure to open the floodgates once again and solve this terrible problem. (See, e.g., here, here, and here.)

As is so often the case, the Open Borders-happy Washington Post editorial board has made the case most succinctly: “[C]ompanies are frantically trying to hire enough workers to keep up with the surge in demand for everything from waffle irons to cars. The nation has more than 11 million job openings and 6 million unemployed.

“This imbalance is giving workers and job seekers tremendous power. Pay is rising at the fastest pace in years….”

Yet this claim is not only profoundly anti-American worker. It’s completely false – at least if you look at the only measures of pay that reveal anything about whether employees are getting ahead or not. And they’re of course the compensation measures adjusted for inflation.

What do they show? Between 2020 and 2021, inflation-adjusted hourly pay for all U.S. workers in the private sector were down by 2.10 percent and for blue-collar workers by 1.52 percent. (As known by RealityChek regulars, the U.S. Labor Department that tracks pay trends for the federal government doesn’t monitor any type of compensation for public sector workers because their wages and salaries and benefits are determined largely by politicians’ decisions, not the forces of supply and demand. As a result, they’re thought to say little about the labor market’s true strengths or weaknesses.)

Do you know when such wages have fallen by that much? Try “never” for the entire workforce (where the Labor Department data go back to 2006), and for blue collar workers, several times during the 1970s, which were a terrible time for the economy overall. (For this group, the official numbers go back to 1964).

But haven’t better benefits compensated? Two Labor Department data sets do measure changes in all forms of compensation. The best known, and the one most closely followed by the Federal Reserve and leading economists everywhere, is the Employment Cost Index (ECI). It covers state and local government (though not federal) employees as well as private sector workers. But there’s no evidence of any inflation-adjusted gains for the nation’s workforce – much less outsized gains – from these statistics either.

From the fourth quarter of 2020 to the fourth quarter of 2021, this index did increase by 4.37 percent for all covered workers (breakouts for white- and blue-collar employees only go up to 2006). Yet during this period, the Labor Department’s inflation measure, the Consumer Price Index, was up 7.42 percent. That’s called “falling behind” in my book.

When business (and government on the state and local levels) starts offering pay that’s rising higher than the inflation rate, then Americans as a whole can start worrying about genuine labor shortages. (And even then, as I’ve written, it would be much better for the economy as a whole if companies responded by boosting their productivity, rather than by agitating for more mass immigation with the aim of driving wages down and of course dodging any incentives to operate more efficiently.) For now, though, it’s obvious that what U.S. business is “frantic” about (to use the Post‘s term) isn’t a shortage of workers. It’s a shortage of cheap workers.

(What’s Left of) Our Economy: Pre-Ukraine War, Anyway, U.S. Manufacturing Employment Regained Momentum

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aircraft, aircraft engines, aircraft parts, automotive, CCP Virus, coronavirus, COVID 19, fabricated metals products, food products, Jobs, Labor Department, machinery, manufacturing, non-farm payrolls, personal protective equipment, pharmaceuticals, PPE, semiconductor shortage, semiconductors, surgical equipment, Ukraine-Russia war, vaccines, Wuhan virus, {What's Left of) Our Economy

As strong as U.S.-based manufacturing’s jobs performance looked on the surface in February, a closer look at the numbers released by the Labor Department this morning reveals that it was even better. The big reason? The 36,000 jobs that domestic industry gained last month came despite an 18,000 falloff in the automotive sector, which remained troubled not only by a global semiconductor shortage that will clearly end one of these days, but by a Canadian truckers’ protest that closed a bridge that’s a key transit route for Canadian-made auto parts needed by U.S. auto plants.

Moreover, revisions of previous months’ data were excellent. January’s initially judged 13,000 sequential employment pickup is now pegged at 16,000 and December’s advance was increased from an already upwardly revised 32,000 to 41,000.

Manufacturers didn’t quite keep pace with the rest of the country’s non-farm businesses in February (the Labor Department’s definition of the American employers’ universe). But given the torrid rate of recent economy-wide net job creation, that performance is hardly shabby, and it’s held its own – literally – during the entire sharp recovery achieved by the economy since its April, 2020 pandemic low point.

Before the CCP Virus began seriously distorting the economy’s behavior (in February, 2020), manufacturing jobs accounted for 8.38 percent of total non-farm payrolls. Including the new revisions, this figure had hit 8.40 percent in January of this year, but the February report showed a dip back to 8.38 percent.

The private sector story has been remarkably similar. Manufacturing employment represented 9.83 percent of that sector’s total jobs in February, 2020. Including the new revisions, the share had risen to 9.86 percent in January of this year, but as of Februay, it had retreated back to 9.83 percent.

Put differently, the entire non-farm economy has now replaced 19.886 million (90.43 percent) of the 21.991 million jobs lost during the terrible months of March and April, 2020. The private sector has replaced fully 20.092 million (fully 95.60 percent) of the 21.016 million positions it shed that spring. Manufacturing has replaced 1.184 million (86.93 percent) of its 1.362 million employment drop. But industry’s share of total jobs has stayed stable because its jobs depression in 2020 was less severe than the entire economy’s or the larger private sector’s

February’s biggest manufacturing jobs winners among the major sectors tracked by the Labor Department were highly concentrated – and all were among January’s stellar performers. They were:

>Fabricated metals products added 10,500 jobs on month – though January’s previously reported 5,000 advance is now estimated at 3,700, and the industry’s employment is still 2.95 percent below its immediate pre-pandemic February, 2020 levels (versus 1.39 percent for all of manufacturing);

>Machinery, whose 8,300 increase is especially encouraging, because its products are used so widely throughout the entire economy. But it’s still 2.92 percent shy of its job level in February, 2020;

>and food products, whose payrolls climbed by 7,200, and whose January results were revised up from a 5,200 improvement to 5,800. This progress brought pushed food manufacturing employment levels to 1.01 percent above those in February, 2020.

Meanwhile, automotive was February’s only significant jobs loser. Its 18,000 monthly employment nosedive was its worst such performance since last April’s 49,100 plunge (also due to semiconductor woes). At least its previously reported 4,900 January sequential jobs drop has been revised up to a 3,500 loss. But automotive employment is still 2.55 percent below immediate pre-pandemic levels.

As always, the most detailed employment data for pandemic-related industries are one month behind those in the broader categories, and their January employment picture showed improvement overall.

Payrolls in the semiconductor and related devices segment increased by 200 on month in January, consistent with their very slow growth over the last five years – including during the pandemic era. Interestingly, its companies actually hired more on net during the very sharp CCP Virus-induced recession of 2020 (by 0.59 percent). Since February, 2020, its payrolls are up by 0.86 percent.

Employment increases stayed strong in January in the surgical appliances and supplies sector, which contains personal protective equipment and similar goods. This industry added 1,700 jobs on net, December’s monthly advance remained at 1,100, and November’s results stayed at an upgraded 3,100 increase. Consequently, the surgical appliances and supplies workforce is now 3.41 percent bigger than in pre-pandemicky February, 2020.

January pharmaceuticals and medicines employment dipped by 100 sequentially, however, and December’s 2,400 hiring jump was downgraded to just 900. November’s 700 jobs growth figure was unrevised. Even so, employment in this sector is 8.23 percent higher than just before the major initial CCP Virus hit to the economy.

As for the medicines subsector containing vaccines, the January figures and revisions seem to reveal some lost hiring steam. January monthly job growth was just 500 – the weakest since July’s 100 – and December’s excellent initially reported 2,400 rise is now judged to have been 2,000. November’s own 2,000 increase was unrevised, though, and job growth in this sector since February, 2020 is still a robust 22.23 percent.

January was a much better month than December for the aviation cluster – except oddly for aircaft. That sector, dominated by Boeing, saw employment shrink by 800 sequentially – is worst such performance since July’s 900 drop. Yet December’s originally estimated 600 employment decrease was upgraded to a decline of 400, and November’s results remained at a downgraded 500 job gain. After these latest fluctuations, aircraft industry employment fell to 11.78 percent less than in February, 2020.

Aircraft engines and engine parts makers, however, hired 1,000 workers on net in January – theit best performance since May, 2020’s 4,700, which came early during the strong late-spring recovery from the virus-induced recession. December’s initially reported jobs gain of 500 was revised up to 700, but November’s loss of 300 stayed unrevised. So although employment in these companies in January was 14.07 percent less than in February, 2020, it’s been closing the gap lately.

A notable employment rebound came in non-engine aircraft parts and equipment, where payrolls rose by 500 in January sinking by an unrevised 900 in December. But November’s results were downgraded from no change to a decrease of 100. And the sector payrolls are still down 17.30 percent since Februay, 2020.

I’m holding off on my usual prognosis for U.S. manufacturing employment because of the Russian invasion of Ukraine and its likely non-trivial economic fallout for the United States, and its probably greater repercussions for the rest of the world (to which domestic manufacturers sell a great deal). U.S.-based industry’s resilience throughout the pandemic has been extraodinary, but big power conflict could create a new and much more formidable set of challenges entirely.

(What’s Left of) Our Economy: The Case for Inflation Optimism Survives!

Tags

consumer price index, core inflation, CPI, Federal Reserve, inflation, inflation-adjusted wages, Jerome Powell, Labor Department, real wages, stimulus, transitory, {What's Left of) Our Economy

Call me a cockeyed optimist, but today’s official U.S inflation figures (for November) still leave me uncertain as to how lasting recent strong price increases are going to be. One obvious (at least to me) reason: Whereas the release of the October Consumer Price Index (CPI) figures showed major month-to-month acceleration of inflation, the November results show some easing.

That’s the case, moreover, both for the overall inflation numbers and for so-called core inflation, which strips out food and energy prices supposedly because they can be volatile for reasons unrelated to the economy’s overal prone-ness to inflation (like bad weather or the policies of foreign cartels).

Acceleration was still displayed by the annual results for both inflation gauges. But the speedup between October and November was somewhat slower than that between September and October. And here we get to the second reason for my continued (though tempered) optimism: This year-on-year pickup still looks partly due to baseline effects created by the unusually weak price increases of last year, when the CCP Virus pandemic was holding back economic activity more than this year. In other words, inflation may still be playing catch-up, and even more frustrating, this kind of distortion could affect the inflation figures for a few more months.

So let’s take a look at the data to see the basis for my arguments. First, this year’s monthly increases in overall inflation:

Dec-Jan:                          0.26 percent

Jan-Feb:                          0.35 percent

Feb-March:                     0.62 percent

March-April:                  0.77 percent

April-May:                     0.64 percent

May-June:                      0.90 percent

June-July:                      0.47 percent

July-Aug:                      0.27 percent

Aug-Sept:                     0.41 percent

Sept-Oct:                      0.94 percent

Oct.-Nov:                     0.78 percent

As is clear, the November rise is still high, but it’s down not trivially from October’s rate – which was the fastest since June, 2008’s 1.05 percent.

The same pattern is apparent for core inflation:

Dec-Jan:                       0.03 percent

Jan-Feb:                       0.10 percent

Feb-March:                  0.34 percent

March-April:                0.92 percent

April-May:                   0.74 percent

May-June:                    0.88 percent

June-July:                     0.33 percent

July-Aug:                     0.10 percent

Aug-Sept:                    0.24 percent

Sept-Oct:                     0.60 percent

Oct-Nov:                     0.53 percent

As mentioned, the year-on-year overall CPI continues to accelerate, though November’s speedup was smaller than October’s. Here are those statistics:

Jan:                             1.37 percent

Feb:                            1.68 percent

March:                       2.64 percent

April:                         4.16 percent

May:                          4.93 percent

June:                          5.32 percent

July:                           5.28 percent

Aug:                           5.20 percent

Sept:                          5.38 percent

Oct:                            6.24 percent

Nov:                           6.88 percent

Ditto for annual core inflation:

Jan:                            1.40 percent

Feb:                            1.28 percent

March:                       1.65 percent

April:                         2.96 percent

May:                          3.80 percent

June:                          4.45 percent

July:                          4.24 percent

Aug:                          3.98 percent

Sept:                          4.04 percent

Oct:                           4.58 percent

Nov:                          4.96 percent

But for me, those baseline effects make both annual inflation rates look a good deal less alarming. Here are the monthly year-on-year overall CPI inflation rates for 2019-2020:

Jan:                            2.47 percent

Feb:                            2.31 percent

March:                       1.51 percent

April:                         0.34 percent

May:                          0.22 percent

June:                          0.73 percent

July:                          1.05 percent

Aug:                          1.32 percent

Sept:                         1.41 percent

Oct:                          1.19 percent

Nov:                         1.14 percent

November’s read was the lowest since August, and represents the third straight month of slowdown that year. And as I wrote last month, percentages with “ones” in front of them had last been seen in the summer of 2017, and these were well above 1.50 percent. So yes, the total annual inflation figures for this year have been rising each month, but these percentage change continue to result partly from 2019 rates that were abnormally low.

And those previous annual rates remained abnormally low in December (1.30 percent) and even into January (1.37 percent). So the baseline effect will start fading, but won’t be reduced to insignificance until March (because by then the previous annual rate had hit 2.64 percent).

The same baseline argument holds for core inflation. Here are its 2019-2020 annual rates of change for each month:

Jan:                           2.26 percent

Feb:                          2.36 percent

March:                      2.10 percent

April:                        1.44 percent

May:                         1.24 percent

June:                         1.20 percent

July:                         1.56 percent

Aug:                         1.70 percent

Sept:                        1.72 percent

Oct:                          1.63 percent

Nov:                         1.63 percent

Most of the absolute numbers are higher, but you see the same very low figures starting in April. And if you still doubt that they’ve been out of the ordinary, as also noted last month, these increases had stayed above two percent since March, 2018. Moreover, similar to the overall CPI, the annual baseline for the core won’t pierce that level until spring (in this case, in Apri. Indeed, before then, this baseline’s set to drop even furtherthrough Febuary, as shown here:

Dec:                         1.61 percent

Jan:                          1.40 percent

Feb:                         1.28 percent

March:                    1.65 percent

April:                      2.96 percent

Please don’t get the idea that I’m slighting the seriousness of recent inflation. There are plenty of reasons for Americans to be angry. The particularly high levels of overall CPI indicate that inflationary pressures are concentrated significantly in food and energy – categories that are not only highly visible to consumers, but essential.

In addition, the cumulation effect has to be kept in mind. Whether it comes to monthly or annual inflation rates, when they come down, that doesn’t mean that prices are actually falling in absolute terms. It simply means that they’re rising more slowly – and for most of this year from levels that are high by recent standards. For example, if prices are up one percent sequentially one month and half a percent the next, they’ve risen a total of 1.505 percent in a two-month span alone. That can really add up over time.

Finally, due to the fall in real wages, the typical American is seeing his and her purchasing power and living standards drop. In fact, in addition to issuing the CPI figures, the Labor Department also came out with the inflation-adjusted wage numbers. In November, they declined by 0.45 percent for all private sector workers, and by 0.41 percent for production and non-supervisory workers. (As known by RealityChek regulars, the Labor Department doesn’t monitor wage data for government workers because their pay is set largely by politicians’ decisions, not by economic fundamentals.)

And since January, real wages for the entire private sector are down 2.45 percent, and for latter, down 1.93 percent.

Warnings that inflation tends to feed on itself certainly shouldn’t be discounted. But even though today’s inflation has stayed higher for longer than many leading economists and analysts (like Federal Reserve Chairman Jerome Powell) have expected, the November numbers increase my confidence that the economy is moving closer to its ebbing.  And this progress should be reenforced by the end of stimulus payments individuals and families, signs that the supply chain crisis is (slowly, to be sure) coming to an end, the diminishing likelihood that Congress will pass President Biden’s Build Back Better spending bill, and the Fed’s own decision to reduce the stimulus it’s long been injecting into the economy in the form of bond buying. 

Further, as noted just above, the much-feared wage-price spiral, which fueled damaging inflation most recently in the 1970s, hasn’t taken off.

But a waning of inflation could well be accompanied by some genuinely bad news – involving a waning of growth. And sustaining an economic expansion strong enough to keep employment and wages at healthy levels but that doesn’t depend heavily on artificial government crutches is a test that U.S. leaders haven’t passed in decades.             

(What’s Left of) Our Economy: Steady as She Goes for U.S. Manufacturing Employment

Tags

737 Max, aerospace, aircraft, aircraft engines, aircraft parts, appliances, automotive, Biden administration, Boeing, Build Back Better, CCP Virus, China, computer and electronics products, coronavirus, COVID 19, electrical equipment, Employment, fabricated metals products, Federal Reserve, food products, Jobs, Labor Department, machinery, manufacturing, miscellaneous durable goods, miscellaneous non-durable goods, NFP, non-farm payrolls, Omicron variant, personal protective equipment, pharmaceuticals, PPE, private sector, stimulus, surgical equipment, vaccines, Wuhan virus, {What's Left of) Our Economy

However disappointing America’s November economy-wide job creation was, the official U.S. statistics released this morning show that you shouldn’t blame the nation’s manufacturers. Although total non-farm payrolls (NFP – the domestic employment universe of the U.S. Labor Department, which tracks these trends) advanced sequentially by a modest 210,000 (the worst such figure since last December’s 306,000 monthly loss), U.S.-based industry added a solid 31,000 net new positions. And revisions of the previous few months strong numbers were revised downward only moderately.

Speaking of revisions, it’s especially important today to note that the new NFP statistics are still preliminary – and will be for two more months. It’s especially important because recently – and no doubt largely due to the unprecedentedly weird nature of the CCP Virus-era U.S. economy – revisions have been enormous. For example, August’s initially reported NFP increase was just 235,000. Since then, it’s been upgraded all the way up to 483,000. The first September result – 194,000 – is now judged to be 379,000. So there’s no reason yet to conclude that the national economic sky is falling, or even changing much.

At first glance, based on this preliminary November data, manufacturing’s latest monthly employment performance slightly trailed that of the rest of the economy.

As of last month, including the revisions, industry has regained 1.132 million (or 81.73 percent) of the 1.385 million jobs it lost during the worst of the pandemic-induced recession in spring of 2020. So the manufacturing employment recovery improved by 1.53 percent on month.

The private sector overall as of November has now regained 18.376 million of the 21.353 million jobs it shed during peak CCP Virus. That 86.06 percent figure is 1.76 percent higher than October’s.

And the total non-farm sector has now recovered 18.450 million of the 22.362 million jobs it lost during that pandemic-triggered downturn. The resulting 82.50 percent mark is 1.60 percent better than October’s.

But don’t forget – manufacturing’s jobs decline during that terrible spring of 2020 was smaller proportionately than that of the private or non-farm sectors. So even though it’s had less ground to make up, U.S.-based industry has been creating new employment at nearly the pace of the economy as a whole.

November’s manufacturing jobs improvement was also noteworthy because it took place despite job losses of 10,100 in the automotive sector – which accounted for more than 40 percent of October’s advances. In fact, automotive revisions also accounted for 70 percent of the downgrading of that overall manufacturing October monthly manufacturing jobs improvement (from 60,000 to 48,000).

Other important November manufacturing job losers in the larger categories monitored by the Labor Department were computer and electronics products, which contains semiconductors, and which saw employment drop by 1,300 (its worst monthly decline since the 4,900 recorded in July, 2020); and – at least as troublingly, machinery. That latter industry, whose products are used throughout manufacturing and big non-manufacturing industries like agriculture and construction, shed 6,000 positions. That was its biggest month’s worth of job losses since the 861,000 disaster during the dark days of April, 2020.

These losses leave computer and electronics employment levels just 0.85 percent higher than just before the pandemic began distorting the American economy (in February, 2020) and machinery employment levels 2.63 percent lower.

November’s big manufacturing jobs winners were topped by the miscellaneous durable goods sector – which includes the major CCP Virus-related medical goods. Its payrolls surged by 10,000 – the most since July, 2020, during the first post- pandemic economic bounce, when they soared by 15,000. The fabricated metals products industry generated a 7,900 payroll jump that was its biggest since March’s 10,100. Food products added 7,400 employees for its best gain since August, 2020’s 19,000. Miscellaneous non-durable goods manufacturing was up 3,500. And electrical equipment and appliances’ payrolls grew by 3,300.

As always, the most detailed employment data for pandemic-related industries is one month behind those in the broader categories, and their October job creation was generally solid.

On the disappointing side was the surgical appliances and supplies sector. This industry contains personal protective equipment and similar goods, and the miscellaneous durable goods sector in which it’s been classified saw employment rise by a respectable 2,900 sequentially in October. But only 100 of these new positions came in the surgical appliances and supplies sub-sector. At the same time, September’s initially reported 900 jobs increase was revised up to 1,300, so maybe October will be a statistical blip – assuming of course that it’s not substantially revised, too. And as of October, payrolls in this sector have climbed by 8.27 percent over their immediate pre-CCP Virus February, 2020 levels – compared with the 7.79 percent calculable from the previous jobs report.

The overall pharmaceuticals and medicines industry performed better, with payrolls swelling by 1,500 in October. Still, September’s initially reported jobs rise of 1,500 was revised down to 1,200. Therefore, employment in these sectors now stands 5.49 percent higher than in February, 2020 – better than the 4.62 percent calculable last month.

The medicines subsector containing vaccines expanded employment by 700 in October – down from September’s 1,700, but better than August’s 400. These results mean that this industry’s workforce is now 13.25 percent larger than in February, 2020.

U.S. aerospace giant Boeing’s manufacturing and safety problems have depressed employment in aircraft production along with the pandemic’s restrictions on travel, and payrolls improved by just 300 on month in October following an unrevised drop of 500 in September. But help may be on the way, with China having just decided that its troubled 737 Max model has passed safety inspections and may return to the China market after a two-year ban that greatly reduced the company’s – and overall U.S. – exports.

So although the American aircraft industry’s workforce in October was still 8.12 percent smaller than it was just before the CCP Virus era (down from the 8.24 percent shrinkage calculable last month), look for the sector to start closing the gap meaningfully.

Good news sure could be used by the U.S. aircraft engines and engine parts industry. In October, its employment dipped by 100, and September’s initially reported jobs gain of 600 has been downgraded to 400. This sector’s workforce is now down 13.82 percent since immediate pre-pandemic-y February, 2020 – more than the 13.49 percent calculable last month.

The situation in non-engine aircraft parts and equipment was a good deal better. It grew payrolls by just 100 in October, but September’s initually reported jobs increase of 900 is now pegged at 1,200 – the best such performance since April, 2008. Consequently, whereas employment in this sector as of last month’s data was 15.82 percent less than in February, 2020, the figure is now 15.48 percent.

A significant Boeing comeback would add to the tailwinds identifiable behind the manufacturing jobs scene at this time. Others of course are the expected continued strong growth of the entire economy, a possibly stronger recovery globally, an easing of the supply chain crisis, the prospect of infrastructure bill money starting to be spent, and the seemingly shrinking odds that manufacturers and other U.S.-based businesses will face significant tax increases related to the Biden administration’s Build Back Better legislation.

Not that clouds are gone from the scene completely. Inflation seems to be picking up (although so far, and by the same token, manufacturers in toto have been able to pass on price increases to business and household customers). A defeat or postponement of Build Back Better will reduce the amount of government stimulus supporting consumer spending – and if the Federal Reserve follows through with its decision to start cutting back on some of its own stimulus, contractionary forces will strengthen. And of course there’s the virus wild card that’s just appeared in the form of the Omicron variant.

Still, the tailwinds now seem more impressive than the clouds, so I’m still optimistic about the future of manufacturing’s jobs recovery.

(What’s Left of) Our Economy: New U.S. Inflation Numbers Show New U.S. Inflation Momentum

Tags

Biden administration, Commerce Department, consumer price index, core inflation, CPI, Federal Reserve, inflation, Labor Department, monetary policy, PCE, personal consumption, supply chains, transitory, {What's Left of) Our Economy

Claims made by Federal Reserve leaders and the Biden administration (along with Yours Truly) that current lofty levels of U.S. inflation are transitory took another hit this morning with the Commerce Department’s release of the October figures for the Personal Consumption Exepnditures (PCE) price indices.

For some reason, these data don’t get the same attention as the Labor Department’s Consumer Price Index (CPI), but they should, since they’re the Fed’s inflation gauge of choice, and the Fed’s power to control inflation (or not) through monetary so profoundly influences the cost of credit, and therefore how fast or slowly the economy grows.

And the new PCE numbers show that between September and October, monthly and yearly price increases regained momentum that had previously showed signs of waning. Let’s go the statistics lists (an economist’s version of “Let’s go to the videotape”). First, the year’s monthly percentage changes in overalll PCE inflation:

Jan.             0.3

Feb.            0.3

March         0.6

April           0.6

May            0.5

June            0.5

July            0.4

Aug.           0.4

Sept.           0.4

Oct.            0.6

Moreover, not only is the October increase back to the previous peaks in March and April, but the August and September results were each revised up from 0.3 percent.

As you can see from the next list, the same kind of pick up can be seen in overall PCE inflation rates on a year-on-year basis. And these percentage canges are more important than the monthly changes because they measure the trend over a longer period of time, and also smooth out the kind of fluctuations that can pop up for random reasons in the short term. Just FYI, the July result was revised down from 4.2 percent.

Jan.              1.4

Feb.             1.6

March          2.5

April            3.6

May             4.0

June             4.0

July              4.1

Aug.             4.2

Sept.             4.4

Oct.              5.0

The monthly core inflation figures strip out food and energy prices – because they can be volatile for reasons like weather, and foreign oil cartels, that have nothing to do with the economy’s underlying proneness to price increases (or decreases). They’ve been somewhat lower in absolute terms than the overall PCE monthly increases. In October, moreover, though they doubled over the September rate, they’re still lower than the price rises recorded in spring and early summer. But that doubling snapped a five-month streak of stabilization or declines. Here are these percentage changes.

Jan.              0.2

Feb.             0.1

March         0.4

April           0.6

May            0.6

June            0.5

July             0.3

Aug.            0.3

Sept.           0.2

Oct.            0.4

As for the year-on-year core percentage changes, they’ve arguably been worse momentum-wise than their monthly counterparts because they’d shown no signs of decline through September. Now they’ve become worse still with the jump to 4.1 percent in October (the biggest such surge in decades). And September’s rate has been revised up from 3.6 percent.

Jan.             1.5

Feb.            1.5

March        2.0

April          3.1

May           3.5

June           3.5

July            3.6

Aug.          3.6

Sept.          3.7

Oct.           4.1

My gut still tells me that current inflation will be transitory – and in some meaningful sense, not because “nothing lasts forever except death and taxes.” That’s because the CCP Virus-era economy is still so downright weird, and because its disruptions – along with the current severity of the disease – are bound to at least calm down at some point in the foreseeable future.

But the new numbers revealing new inflation momentum are telling the opposite story, and their importance is all the more impressive for basically matching the trends shown by the CPI figures. So the burden of proof on inflation’s future has definitely shifted to the shoulders of the transitory-istas.

(What’s Left of) Our Economy: In Case You Still Think Wages are Driving U.S. Inflation

Tags

consumer price index, CPI, inflation, inflation-adjusted wages, Labor Department, wage-price spiral, wage-push inflation, wages, {What's Left of) Our Economy

Although American workers’ pay has kept falling behind living costs this entire year on net, some serious students of the economy (see, e.g., here and here) seem to believe that they’re already starting to fuel the lofty inflation the nation has experienced recently, or will soon begin to.

So I thought that today I’d add to the evidence I’ve already presented (see, especially, here and here) making clear that nothing of the kind has happened so far during 2021, and no signs of this kind of “wage-price spiral” are yet visible.

The first new set of figures clashing with fears of what’s also called “wage push” inflation is below, in a table comparing the monthly overall inflation rates as measured by the U.S. Labor Department’s Consumer Price Index, and the monthly changes in pre-inflation hourly wages (also tracked by the Labor Department.

                    Monthly inflation rate this year     pre-inflation wages this year

Dec-Jan:                   0.26 percent                                 0.03 percent 

Jan-Feb:                   0.35 percent                                 0.27 percent

Feb-March:              0.62 percent                               -0.10 percent 

March-April:           0.77 percent                                 0.66 percent 

April-May:              0.64 percent                                 0.46 percent

May-June:               0.90 percent                                 0.43 percent 

June-July:                0.47 percent                                  0.36 percent

July-Aug:                0.27 percent                                  0.39 percent 

Aug-Sept:               0.41 percent                                  0.59 percent

Sept.-Oct:               0.94 percent                                  0.36 percent

As the table shows, in only two months so far – August and September – has the increase in the pay received by workers exceeded the increase in total U.S. prices. And in October, the gap between inflation rates and wage increases expanded again to its widest extent of the entire year. Indeed, the October current dollar wage increase matched the smallest secured the entire year.

If a wage-powered inflationary spiral was underway, then exactly the opposite would be taking place. Workers would continue seeking raises that consistently topped inflation rates, and employers would continue raising their prices in bids to keep up. And you certainly wouldn’t see the wage gains losing momentum instead of gaining momentum.

The second set of figures debunking the wage-push inflation claims and fears was inspired by my buddy Widge, who I first met on Twitter, and whose insights on the economy and many other subjects I’m always learning from. (Widge has always been too modest to use his name, but I know he’s a real person because we’ve had dinner together.)

Last week, Widge tweeted a chart illustrating the astronomical spike in prices of new motor vehicles and accompanied it with the question, “Do you think it is wages of 4 million fewer payroll employees that are driving the massive inflation of new Autos in the past year?”

Widge’s tweet prompted me to ask a slightly different question: “How do price increases in the hottest inflation sectors of the economy compare with the wage trends in those industries”? Presumably, if the United States was already experiencing wage-push inflation, worker pay in sectors where prices have jumped over the past year faster than the overall annual inflation rate (5.4 percent for September) would be unusually high, too.

Unfortunately, the industry-by-industry wage and price data tracked by the Labor Department don’t always match up, but the table below presents the results for ten high-inflation sectors from all over the economy, and they won’t make the wage-price spiral crowd happy, either. (I’m using September’s statistics because that’s the latest data month for which the most numbers are available.)

                Sept. 2020-2021 CPI change                         Sept 2020-21 wages change

non-poultry meat:    12.6 percent                                          6.84 percent 

poultry:                      6.1 percent                                        13.01 percent 

restaurants:                5.3 percent                                        12.21 percent

furniture/bedding    12.0 percent                                          6.79 percent 

new vehicles             9.8 percent                                         -0.54 percent 

used vehicles          26.4 percent                                         -6.46 percent 

motor vehicle parts   8.8 percent                                         -4.19 percent 

hotels/motels:         17.5 percent                                         12.76 percent

laundry/dry cleaning 6.9 percent                                        10.60 percent

gasoline*:                49.6 percent                                        10.57 percent**

*motor fuel

**gas stations without convenience stores

After all, in the ten sectors shown, pre-inflation wages have surged faster than prices in only three – poultry processing, restaurants and other eating places, and laundry and dry cleaning services. And in three of the ten industries (new motor vehicles, used motor vehicles, and motor vehicle parts) wages have actually fallen before inflation is taken into account. Again, if wages were the main, or even a prime, inflationary culprit, they’d generally be rising faster than prices overall.

No one in his right mind can rule out the possibility that a wage-price spiral will be ignited. Workers are still returning to the job market at a relatively slow rate. Funds from the CCP Virus relief bill ae still being injected into the economy, more infrastucture and related spending will soon start being released, and still more will be on the way if the Senate passes a version of President Biden’s Build Back Better bill that’s close to the measure the House has approved.

But for now, anyone blaming American workers for recent inflation can be rightly accused of blaming the victim.

(What’s Left of) Our Economy: The Case for Transitory U.S. Inflation Just Weakened

Tags

CCP Virus, consumer price index, core inflation, coronavirus, COVID 19, CPI, inflation, Labor Department, lockdowns, logistics, prices, reopening, stay-at-home, supply chain, transportation, Wuhan virus, {What's Left of) Our Economy

At first glance, this morning’s U.S. inflation report almost had me throwing in the towel in the debate between those (like me) believing that recent price hikes will peter out sooner rather than later, and those believing that they’ll be much longer lasting.

My pessimism stemmed from the indisputable facts not only that by all the major month-on-month and year-on-year measures, the numbers for October were terrible in their own right. They also showed inflation gaining momentum. My case for optimism focused on a loss of momentum I’d identified through September.

Today’s statistics definitely shifted the weight of the evidence in favor of the pessimists. But I still see one possible reason for continued optimism – though the accent is on “possible.” Specifically, the year-on-year numbers may again be partly functions of unusually weak inflation last year, when the CCP Virus pandemic was undermining the economy even more than this year.

Let’s review the main monthly and annual numbers for this calendar year first, though, because it’s worth seeing just how bad they are and how much inflation momentum they reveal. First, the monthly results for overall inflation (as measured by the Labor Department’s Consumer Price Index, or CPI). As you can see, whereas sequential price increases between July and September had been coming in considerably lower than their June peak, in October they shot up past the June peak – to the highest level since June, 2008 (1.05 percent).

Dec-Jan:                          0.26 percent

Jan-Feb:                          0.35 percent

Feb-March:                     0.62 percent

March-April:                  0.77 percent

April-May:                     0.64 percent

May-June:                      0.90 percent

June-July:                      0.47 percent

July-Aug:                      0.27 percent

Aug-Sept:                      0.41 percent

Sept.-Oct:                      0.94 percent

The recent acceleration in the monthly changes in so-called core inflation was even stronger. (This gauge strips out food and energy prices, because however vital these commodities are to daily life, their price levels can be influenced by developments like bad weather or the decisions of the OPEC oil-producing countries’ cartel that supposedly say little about how fundamentally inflation-prone the economy is or isn’t.)

As of October, core inflation is still well below its peak in early spring. But it’s much highe than it’s been in the last three months:

Dec-Jan:                      0.03 percent

Jan-Feb:                       0.10 percent

Feb-March:                  0.34 percent

March-April:                0.92 percent

April-May:                   0.74 percent

May-June:                    0.88 percent

June-July:                     0.33 percent

July-Aug:                     0.10 percent

Aug-Sept:                    0.24 percent

Sept-Oct:                     0.60 percent

The case for acceleration is at least as strong for annual overall inflation. As I wrote last month, the rate of change had been more or less plateauing since May, but clearly shifted into a higher gear in October. Indeed, last month’s yearly increase was the biggest since December, 1990’s increase of 6.25 percent.

Jan:                             1.37 percent

Feb:                            1.68 percent

March:                       2.64 percent

April:                         4.15 percent

May:                          4.93 percent

June:                          5.32 percent

July:                           5.28 percent

Aug:                           5.20 percent

Sept:                          5.38 percent

Oct:                            6.24 percent

The same speed-up can be seen in the annual core inflation figures. And they’ve just hit their highest level since September, 1991 (4.60 percent).

Jan:                            1.40 percent

Feb:                            1.28 percent

March:                       1.65 percent

April:                         2.96 percent

May:                          3.80 percent

June:                          4.45 percent

July:                          4.24 percent

Aug:                          3.98 percent

Sept:                          4.04 percent

Oct:                           4.58 percent

But now the data providing (some) cause for optimism. They cover the annual inflation figures for 2019-2020, and the reason for examining them is that if inflation that year was unusually low, then whatever price hikes are recorded the year after will be unusually – and to some extent, artificially – high.

As clear from the below numbers, those 2019-2020 inflation rates became rock bottom as the CCP Virus began spreading, the economy began locking down, and consumers turned super cautious. From June through September, they rose again as the reopening after that first virus wave proceeded. But numbers like those, with one handles, hadn’t been seen recently since the summer of 2017, and even these were all well above 1.50 percent.

But October saw a sizable dropoff – from 1.41 percent to 1.19 percent.

Jan:                            2.47 percent

Feb:                            2.31 percent

March:                       1.51 percent

April:                         0.34 percent

May:                          0.22 percent

June:                          0.73 percent

July:                          1.05 percent

Aug:                          1.32 percent

Sept:                         1.41 percent

Oct:                          1.19 percent

And possibly as interesting: The November, 2019-2020 overall inflation rate (below) was even lower. December’s was higher, but not by much. So I’d argue that caution is warranted in reading too much into the latest big annual CPI increase.

Nov:                          1.14 percent

Dec:                           1.30 percent

The story told by the core inflation data is similar. Annual price hikes below two percent didn’t reappear until March, 2018 and stayed above that level until the depths of last year’s short but steep pandemic-induced recession. Following that first wave and its dramatic impact, annual 2019-2020 core inflation rates came back, but never approached two percent. And in October, fell back to 1.63 percent.

Jan:                           2.26 percent

Feb:                          2.36 percent

March:                      2.10 percent

April:                        1.44 percent

May:                         1.24 percent

June:                         1.20 percent

July:                         1.56 percent

Aug:                         1.70 percent

Sept:                        1.72 percent

Oct:                          1.63 percent

How did they perform through the end of 2020? Cumulatively, they drifted down further.

Nov: 1.65 percent

Dec: 1.61 percent

In this vein, it will be especially interesting to see how the annual 2021-2022 statistics look when they begin coming in early next year. My bet right now is that they’ll decline simply because this particular CCP Virus effect will be wearing off. And hopefully, progress toward untangling knotted global supply chains will help moderate the monthly numbers. (Until then, though, the holiday shopping season could well keep propping them up.) But if those logistics and transport troubles remain serious, all bets come off. Ditto for energy prices if they stay up.

None of this is to minimize the pain that recent and current inflation have inflicted on Americans, and especially lower income Americans. And the October results suggest that even if these price hikes prove to be a transitory development due largely to one-off CCP Virus-related disruptions, there’s no doubt that the definition of “transitory” keeps expanding chronologically – and possibly making this debate look pretty moot.