(What’s Left of) Our Economy: Why the Really Tight U.S. Job Market Isn’t Propping Up Much Inflation

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CCP Virus, consumer spending, consumers, coronavirus, cost of living, COVID 19, Federal Reserve, headline PCE, inflation, inflation-adjusted wages, interest rates, Jerome Powell, monetary policy, PCE, personal consumption expenditures index, prices, recession, stagflation, stimulus, wages, {What's Left of) Our Economy

It’s been widely assumed that even though very tight U.S. labor markets haven’t yet touched off the kind of wage-price spiral that can supercharge inflation, they’ve been helping consumers offset the effects of rapidly rising prices – and therefore helping to keep living costs worrisomely high.

The intertwined reasons? Because even though when adjusted for inflation, wages generally have been falling since price increases took off in early 2021, rock-bottom unemployment rates and the wage hikes that have been received have enabled healthy consumer spending – and given business unusual pricing power.

Most important, this is what the Federal Reserve believes, and it’s the federal government institution with the prime responsibility for fighting inflation. According to Chair Jerome Powell, “demand for workers far exceeds the supply of available workers, and nominal wages have been growing at a pace well above what would be consistent with 2 percent inflation over time.”

For good measure, Powell said that the labor market “holds the key to understanding inflation” especially in U.S. services industries other than housing, which make up more than half of the set of inflation data favored by the Fed, and where “wages make up the largest cost.”

How come, then, when you look at the wage data put out by the federal government, it’s so hard to find evidence that recent wage levels have significantly bolstered U.S. workers’ spending power during this current high inflation period?

Given the Fed’s power, it makes sense to use the inflation measure it values most – which as RealityChek regulars know is the Personal Consumption Expenditures (PCE) Price Index. As the Fed prefers, we’ll focus on the “headline” gauge, which includes the food and energy prices that are stripped out of a different (“core”) reading supposedly because they’re volatile for reasons having nothing to do with the economy’s underlying prone-ess to inflation.

And for the best measure of the wages workers are taking home, we’ll use weekly wages. What they show is that since the headline PCE rate first breached the central bank’s two percent target, in March, 2021, inflation-adjusted weekly pay (as opposed to the pre-inflation wages Powell oddly emphasizes) is actually down – by 4.60 percent. For production and non-supervisory workers (call them “blue collar” workers for convenience’s sake), real weekly wages were off by a more modest but still non-trivial 3.52 percent.

And this has propped up American consumer spending exactly how?

The Fed actually looks more closely at a wider official measure of compensation than the wage figures. It’s called the Employment Cost Index (ECI) and it takes into account salaries as well as wages, along with non-wage benefits. The ECI only comes out quarterly, and the next one, for the fourth quarter,of last year, won’t be out till January 31. But from the second quarter of 2021 (roughly when headline annual PCE inflation rose higher than that two percent Fed target) through the end of the third quarter of 2022, the ECI for private sector workers) also dropped in after-inflation terms – by 2.39 percent.

But if American workers’ pay isn’t doing much to power their still-strong consumption, what is? Obviously, the answer is mainly the excess savings piled up thanks to pandemic stimulus programs and government measures aimed at…compensating them for high inflation.

When it comes to fighting inflation, there’s good news stemming from the status of these enormous amounts of cash injected into American bank accounts: They’re being run down significantly or are just about gone for everyone except the wealthy. That no doubt explains much of the recent evidence of the cooling of the white hot levels of consumer demand that filled so many businesses with confidence that they could jack up prices dramatically are cooling, and why headline PCE is showing some signs of ebbing.

The bad news remains what it always has – that meaningfully reduced consumer spending, combined with the Fed’s continued stated determination to keep increasing the price of the borrowing that spurs so much spending, could trigger more unemployment, even worse wage trends, and a possibly painful recession.

Yet as I wrote in that above-linked RealityChek post, the $64,000 questions that will determine inflation’s fate remains unanswered: Will recession fears lead the Fed to chicken out, and at least pause its inflation-fighting interest rate increases? And will Congress and the Executive Branch decide to ride to the rescue as well, with new politically popular stimulus programs – which are likely to stimulate inflation, too?  My answer remains a pretty confident “Yes,” which is why my forecast for the economy calls for a short, fairly shallow downturn followed by a significant stretch of “stagflation” – sluggish growth and above-Fed-target inflation.   

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(What’s Left of) Our Economy: Why the U.S. Inflation Outlook Just Got Even Cloudier

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CCP Virus, China, consumer price index, consumers, core CPI, coronavirus, cost of living, COVID 19, CPI, energy prices, Federal Reserve, food prices, inflation, Jerome Powell, prices, recession, stagflation, stimulus, supply chains, Ukraine War, Wuhan virus, {What's Left of) Our Economy

If the big U.S. stock indices didn’t react enthusiastically to yesterday’s official American inflation figures (which were insensitively released the very day I had a minor medical procedure), that’s because they were too mixed to signal that consumer prices were finally being brought under control.

Lately, good news on inflation-fighting has been seen as good news for stock investors because it indicates that the Federal Reserve may at least pause its campaign to hike interest rates in order to slow economic growth significantly– and even trigger a recession. That’s because a weaker economy means consumers will have less money to spend and that businesses therefore will find it much harder to keep raising prices, and even to maintain prices at currently lofty levels. And all else equal, companies’ profits would take a hit.

So already softening inflation could convince the central bank that its efforts to date have been good enough, and that its goal of restoring price stability can be achieved without encouraging further belt tightening – and more downward pressure on business bottom lines.

Of course, stock investors aren’t always right about economic data. But their take on yesterday’s figures for the Consumer Price Index (CPI), which cover December. seems on target.

The data definitely contained encouraging news. Principally, on a monthly basis, the overall (“headline”) CPI number showed that prices actually fell in December – by 0.08 percent. That’s not much, but this result marks the first such drop since July’s 0.02 percent, and the biggest sequential decline since the 0.92 percent plunge recorded in April, 2020, when the economy was literally cratering during the CCP Virus’ devastating first wave. Further, this latest decrease followed a very modest 0.10 percent monthly increase in November.

So maybe inflation is showing some genuine signs of faltering momentum? Maybe. But maybe not. For example, that CPI sequential slip in July was followed by three straight monthly increases that ended with a heated 0.44 percent in October.

Moreover, core CPI accelerated month-to-month in December. That’s the inflation gauge that strips out food and energy prices because they’re supposedly volatile for reasons having little or nothing to do with the economy’s underlying inflation prone-ness.

December’s sequential core CPI rise was 0.30 percent – one of the more sluggish figures of the calendar year, but a rate faster than a November number of 0.27 percent that was revised up from 0.20 percent. Therefore, these last two results could signal more inflation momentum, not less.

In addition, as always, the annual headline and core CPI numbers need to be viewed in light of the baseline effect – the extent to which statistical results reflect abnormally low or high numbers for the previous comparable period that may simply stem from a catch-up trend that’s restoring a long-term norm.

Many of the multi-decade strong year-to-year headline and core inflation rates of 2021 came after the unusually weak yearly results that stemmed from the short but devastating downturn caused by that first CCP Virus wave. Consequently, I was among those (including the Fed) believing that such price rises were “transitory,” and that they would fade away as that particular baseline effect disappeared.

But as I’ve posted (e.g., last month), that fade has been underway for months, and annual inflation remains powerful and indeed way above the Fed’s two percent target. The main explanations as I see it? The still enormous spending power enjoyed by consumers due to all the pandemic relief and economic stimulus approved in recent years, and other continued and even new major government outlays that have put more money into their pockets (as listed toward the end of this column).

(A big hiring rebound since the economy’s pandemic-induced nadir and rock-bottom recent headline unemployment rates have helped, too. But as I’ll explain in an upcoming post, the effects are getting more credit than they deserve.)

And when you look at the baselines for the new headline and core CPI annual increases, it should become clear that after having caught up from the CCP Virus-induced slump, businesses still believe they have plenty of pricing power left, which suggests at the least that inflation will stay high.

Again, here the inflation story is better for the annual headline figure than for the core figure. In December, the former fell from November’s 7.12 percent to 6.42 percent – the best such number since the 6.24 percent of October, 2021, and the sixth straight weakening. The baseline 2020-2021 headline inflation rate for December was higher than that for November (6.83 percent versus 7.10 percent), and had sped up for four consecutive months. But that November-December 2020-2021 increase was more modest than the latest November-December 2021-2022 decrease, which indicates some progress here.

At the same time, don’t forget that the 6.24 percent annual headline CPI inflation of October, 2020-2021 had a 2019-2020 baseline of just 1.18 percent. Hence my argument that businesses today remain confident about their pricing power even though they’ve made up for their pandemic year weakness in spades.

In December, annual core inflation came down from 5.96 percent to 5.69 percent. That was the most sluggish pace since December, 2020-2021’s 5.48 percent, but just the third straight weakening. But the increase in the baseline number from November to December, 2021 was from 4.59 percent to that 5.48 percent – bigger than the latest November-December decrease. In other words, this trend for core CPI is now running opposite it encouraging counterpart for headline CPI.

Finally, as far as baseline arguments go, that 5.48 percent December, 2021 annual core CPI increase followed a baseline figure the previous year of a mere 1.28 percent. Since the new annual December rate of 5.69 percent comes on top of a rate more than four times higher, that’s another sign of continued business pricing confidence.

But the inflation forecast is still dominated by the question of how much economic growth will sink, and how the Fed in particular will react. And the future looks more confusing than ever.

The evidence for considerably feebler expansion, and even an impending recession, is being widely cited. Indeed, as this Forbes poster has reported, “The Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters indicates the highest probability of a recession over the next 12 months in the survey’s 55-year history.”

If they’re right, inflation may keep cooling modestly for a time but still remain worrisomely warm. And the Fed may react either by keeping interest rates lofty for longer than expected – as Chair Jerome Powell has already said – or even raise them faster. 

Nonetheless, although the recession that did take place during the first and second quarters of last year convinced numerous observers that worse was yet to come, the third quarter saw a nice bounceback and the fourth quarter could be even better. So if a downturn is coming, it will mean that economic activity will need to shrink very abruptly. Hardly impossible, but hardly a sure thing.

And if some form of economic nosedive does occur, it could prompt the Fed to hold off or even reverse course to some extent, even if price increases remain non-trivial. A major worsening of the economy may also lead Congress and the Biden administration to join the fray and approve still more stimulus to cushion the blow.

Complicating matters all the while – the kind of monetary stimulus added or taken away by the central bank takes months to ripple through the economy, as the Fed keeps emphasizing.  Some of the kinds of fiscal stimulus, like the pandemic-era checks, work faster, but others, like the infrastructure bill and the huge new subsidies for domestic semiconductor manufacturing will take much longer.

Additionally, some of the big drivers of the recent inflation are even less controllable by Washington and more unpredictable than the immense U.S. economy – like the Ukraine War’s impact on the prices of energy and other commodities, including foodstuffs, and the wild recent swings of a range of Chinese government policies that keep roiling global and domestic supply chains. 

My own outlook? It’s for a pretty shallow, short recession followed by a comparably moderate recovery and all accompanied by price levels with which most Americans will keep struggling. Back in the 1970s, it was called “stagflation,” I’m old enough to remember that’s an outcome that no one should welcome, and it will mean that the country remains as far from achieving robust, non-inflationary growth as ever.  

Making News: Podcast On-Line of New National Radio Interview on the Economy’s Confusing State

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election 2024, Employment, Federal Reserve, inflation, interest rates, Jobs, Making News, Market Wrap with Moe Ansari, monetary policy, quantitative tightening, recession, stagflation

I’m pleased to announce that the podcast is on-line of my latest appeaance on the nationally syndicated “Market Wrap with Moe Ansari.” Click here for an unusually detailed discussion of the outlook for the U.S. economy, why the signals being sent out from every source imaginable are still so wildly mixed, and on how politics could be driving many key decisions going forward.

And keep on checking in with RealityChek for news of upcoming media appearances and other developments.

Making News: Back on National Radio Tonight Talking Ukraine Fallout, Inflation, and China

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cost of living, energy prices, food prices, inflation, Lehman moment, Making News, nuclear war, stagflation, Ukraine, Ukraine War

I’m pleased to announce that I’m scheduled to return tonight on the nationally syndicated “Market Wrap with Moe Ansari.” Our scheduled subjects: the possibility I discussed recently that the U.S.’ strong support of Ukraine could trigger the kinds of global calamities it seeks to prevent, whether America’s torrid inflation has peaked, and what’s ahead for China’s increasingly troubled economy.

“Market Wrap” airs weeknights between 8 and 9 PM EST, these segments usually begin midway through the show, and you can listen live on-line here.

As usual, if you can’t tune in, I’ll post a link to the podcast of the inteview as soon as it’s available.

And keep on checking in with RealityChek for news of upcoming media appearances and other developments.

Following Up: Podcast Now On-Line of National Radio Interview on Pelosi Taiwan Visit and U.S. Stagflation Prospects

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Asia-Pacific, China, decoupling, Following Up, geopolitics, Indo-Pacific, inflation, manufacturing, Market Wrap with Moe Ansari, Nancy Pelosi, national security, Pelosi, recession, sanctions, semiconductors, stagflation, Taiwan, tech, Trade, trade deficit

I’m pleased to announce that the podcast is now on-line of my interview last night on the nationally syndicated “Market Wrap with Moe Ansari.” Click here for a timely conversation on two headline issues:  how U.S. House Speaker Nancy Pelosi’s controversial visit to Taiwan could hit U.S.-China economic relations and America’s access to Taiwan’s world-class semiconductor manufacturing prowess; and why what’s in store for the U.S. economy could be even worse than the recession that’s now widely forecast.

And keep on checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: The Worst of All Possible Inflation Worlds for U.S. Workers?

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ECI, Employment Cost Index, Federal Reserve, inflation, Jerome Powell, Labor Department, labor productivity, PCE, personal consumption expenditures index, productivity, recession, stagflation, wages, workers, {What's Left of) Our Economy

The newest report on a key official measure of worker compensation has just shown that, during today’s high inflation era, American workers could be both significantly fueling the soaring prices that are dominating the U.S. economy and getting shafted by them.

This measure – called the Employment Cost Index – is tracked by the Department of Labor, and is watched closely by the Federal Reserve (the government’s chief inflation-fighting agency) for two major reasons. First, it includes not just wages, but salaries and non-cash benefits. Second, unlike the Labor Department’s average wage figures, it takes into account what economists call compositional effects.

In other words, the those wage figures report hourly and weekly pay for specific sectors of the economy, but they don’t say anything about labor costs for businesses for the same jobs over time. The ECI tries to achieve this aim by factoring in the way that the makeup of employment between industries can change, and the way that the makeup of jobs within industries can change (e.g., from a majority of lower wage occupations to one of higher wage occupations).

In his press conference last Wednesday following the Federal Reserve’s announcement of a second straight big increase in the interest rate it controls directly, Chair Jerome Powell mentioned that the ECI report coming out on Friday would greatly influence the central banks’ decision on how much more tightening of credit conditions would be needed to slow the economy enough to cool inflation acceptably.

That’s because, as he has explained previously, the supposedly superior insights on worker pay provided by the ECI enable the Fed to figure out whether a major inflation engine has started to rev up – employee compensation rising faster than worker productivity. Industries (or entire economies) in this situation are denied the option of absorbing wage increases by achieving greater efficiencies in their operations Therefore, they face more pressure to maintain earnings and profits by passing pay increases onto their customers, their customers face more pressure to keep up with living costs by pushing for pay hikes themselves, and what economists term a classic and hard-to-break wage-price spiral takes off.

The new ECI results per se looked alarming enough from this perspective. They showed that between the second quarter of 2021 and the second quarter of 2022, total employee compensation for the private sector ose by 5.5 percent. That’s the fastest pace since this data series began in 2001. Moreover, this record represented the third straight all-time high. (RealityChek regulars know that private sector numbers are the most important gauge, since its pay and other indicators are mainly driven by market forces, unlike the statistics for government workers, where the indicators largely reflect politicians’ decisions.)

Sadly, though, according to the Fed’s favorite measure of consumer inflation (the Commerce Department’s Personal Consumption Expenditures price index), living costs increased by 6.45 percent. So workers fell further behind the eight ball.

Perhaps worst of all, however, productivity growth is in the toilet. We won’t get the initial second quarter figures until September 1, but during the first quarter, for non-farm businesses (the most closely followed measure for the private sector), it fell year-on-year by 0.6 percent – the worst such performance since the fourth quarter of 1993.

Nor was this figure a one-off for the current high inflation period. From the time consumer prices began their recent speed up (April, 2021) through the first quarter of this year, labor productivity is off by 1.36 percent, the ECI is up 3.95 percent, and PCE inflation has risen by 4.65 percent. So a strong case can be made that workers, businesses, and the economy as a whole are in the worst of all possible worlds.

Whenever productivity is the subject, it’s important to note that it’s the economic performance measure in which economists probably have the least confidence. And even if it’s accurate, don’t jump to blame workers for sloughing off. Maybe management is doing a lousy job of improving their productivity. Alternatively, maybe managers simply haven’t figured out how to do so in the midst of so many unusual challenges posed by the pandemic and its aftermath – chiefly the stop-go nature of the economy’s early aftermath, and the resulting turbulence that, along with the Ukraine war and China’s Zero Covid policy, is still roiling and stressing supply chains.

Whatever’s wrong, though, unless a course correction comes soon, it looks like the odds of the economy sinking into prolonged stagflation – roaring inflation and weak economic growth – are going up. And ultimately, that matters more to the American future than whether some form of recession is already here, or around the corner.

Following Up: Podcast Now On-Line of TNT Radio Interview

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abortion, border security, Capitol riot, China, Following Up, Hvorje Moric, Immigration, inflation, January 6 committee, jihadists, Middle East, national security, partisanship, politics, recession, semiconductors, stagflation, Taiwan, terrorism, TNT Radio, tribalism, `

I’m pleased to announce that the podcast is now on-line of my interview last night on “The Hrjove Moric Show” on the internet radio network TNT Radio. Click here for a discussion on headline issues that ranged from the Ukraine war to the U.S. economy’s prospects to China’s future to U.S. immigation and anti-terrorism policies to the January 6^th Committee to growing tribalism in American politics.

And keep checking in with RealityChek for news of upcoming media appearances and other developments

(What’s Left of) Our Economy: Curb Your Enthusiasm About Those New U.S. Inflation Figures

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Atlanta Federal Reserve Bank, consumer price index, core inflation, CPI, economic growth, GDP, gross domestic product, inflation, PCE, personal consumption expenditures index, stagflation, {What's Left of) Our Economy

Don’t get me wrong – any signs that U.S. inflation is cooling are welcome, and some can be found in today’s official report containing data on the Federal Reserve’s preferred gauge of consumer price increases. At the same time, for two main reasons, I’d recommend at least curbing enthusiasm about the inflation outlook.

The first concerns the baseline effect I’ve been writing about since prices began surging early last year. The second has to do with the likely relationship between the new (April) results for the price indexes for personal consumption expenditures (PCE) and the sagging rate of American economic growth.

But let’s first examine the reasons for inflation optimism contained in the new Commerce Department numbers (which are one of two data sets on consumer price trends produced by the federal government, the other being the Labor Department’s Consumer Price Index, or CPI).

The biggest is the steep drop in the monthly overall PCE inflation rate in April. It fell last month to 0.2 percent from 0.9 percent in March. That was the weakest such figure since the 0.1 percent increase in November, 2020 – when the CCP Virus’ first winter rebound was gathering steam, and the torrid economic recovery from the pandemic’s initial arrival earlier that year was slowing dramatically.

Even more impressive, the fall-off between March and April overall PCE inflation (0.7 percentage points) was the steepest since December, 2011 and January, 2012 (0.8 percentage points).

Oddly, though, no change was recorded in the monthly rate of core PCE inflation (which, like its CPI counterpart, strips out food and energy prices because they’re supposedly volatile for reasons unrelated to the economy’s fundamental inflation prone-ness). April’s sequential rise was the same as March’s – 0.3 percent. Still, it’s down from the 0.5 percent neighborhood in which core PCE stayed from October, 2021 and this past January.

The year-on-year PCE inflation rates weren’t devoid of good news, either, but it was less impressive than the latest monthly overall PCE result precisely because of that baseline effect and because of the overall economy’s dreary recent performance.

As known by RealityChek regulars, the annual figures are followed more closely than the monthlies because they show trends over a longer period of time, and therefore are less likely to be thrown off by random short-term fluctuations. As also known by the regulars, the high annual inflation figures of all kinds for much of last year were somewhat misleading because their point of comparison – i.e., their baseline – was the set of annual figures for pandemic-depressed 2020. And these were so unusually low. For many months, therefore, even a simple return to normal price increases was bound to show up as a major jump.

But the baseline for this year’s annual figures is no longer 2020 – when inflation was practically gone and even turned into deflation for a stretch – but 2021, and its artificially high (but still high) inflation rates.

So the slowdown in last month’s annual overall PCE inflation (from 6.6 percent to 6.3 percent) shouldn’t be overlooked. But it’s crucial to keep in mind that it’s coming off an April, 2020-2021 overall PCE increase of an already elevated 3.6 percent. Moreover, that April, 2020-21 rate was not only lofty, but accelerating. It’s March counterpart was only 2.5 percent.

Ditto for the slowdown in annual core PCE inflation from 5.2 percent in May to 4.9 percent in April. It’s certainly better than a speed up! But its baseline figure is last April’s warm-ish 3.1 percent, and that figure was much warmer than March’s two percent even – a pace the Fed views as ideal.

Now for the second reason for caution in cheering the new PCE results: They’re surely coming down because the economy’s growth rate has downshifted significantly. In the fourth quarter of last year, it shot up by 6.9 percent at annual rates after inflation. In the first quarter of this year, the gross domestic product (GDP) actually shrank – by 1.5 percent annualized in real terms. And the pretty reliable forecasters of the Atlanta Federal Reserve Bank believe growth in the second quarter will rebound only to 1.9 percent by the same measure.

Students of the economy call the combination of sluggish growth and strong inflation “stagflation.” Unfortunately, I think that’s the likeliest outcome for America’s foreseeable future being signaled by the new PCE results.

(What’s Left of) Our Economy: U.S. Inflation Still Looks Transitory and Baseline-y – For Now

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baseline effect, CCP Virus, consumer price index, core inflation, coronavirus, COVID 19, CPI, Federal Reserve, inflation, monetary policy, PCE, personal consumption expenditures index, semiconductors, shortages, stagflation, stimulus, supply chain, Wuhan virus, {What's Left of) Our Economy

Earlier this month, we learned from the latest official U.S. jobs report how dramatically revisions can change the picture of the economy’s performance. Today’s official inflation numbers – presenting the Consumer Price Index (CPI) – contained some interesting revisions, too, and they’re enough to keep me in the “transitory” camp on the future of price increases at least a month more – and specifically, as long as the ”baseline effect” will remain in place.

In plain English, this means that I still believe that inflation nowadays– which is unmistakably high by historic standards and painful for so many Americans – results mainly from major distortions in the economy created by the CCP Virus and related regulatory and behavioral curbs. Also affecting inflation’s annual rates of change throughout 2021 and into early 2022: the fact that the previous year’s inflation – the baseline – was so abnormally low. In fact, one of the key revelations of the revisions is that the baseline effect for “headline inflation” (the figure that tries to cover everything) has increased some in recent months, and therefore has played a moderately larger role in pushing up the latest numbers.

First, though, let’s look at the monthly changes in the overall inflation rate going back to January, 2021, along with the revisions (the number furthest to the right):

Dec-Jan:                          0.26 percent  now 0.24 percent

Jan-Feb:                          0.35 percent  now 0.44 percent

Feb-March:                     0.62 percent   now 0.64 percent

March-April:                  0.77 percent   now 0.64 percent

April-May:                     0.64 percent   now 0.70 percent

May-June:                      0.90 percent   now 0.88 percent

June-July:                      0.47 percent    now 0.45 percent

July-Aug:                      0.27 percent    now 0.33 percent

Aug-Sept:                      0.41 percent   unrevised

Sept-Oct:                       0.94 percent    now 0.87 percent

Oct-Nov:                       0.78 percent    now 0.69 percent

Nov-Dec:                      0.47 percent     now 0.58 percent

Dec-Jan:                        0.65 percent

There’s no doubt that a sequential speed-up took place between December and January. But even with the revisions, decelerations took place between October and November, and November and December. In fact, October remains the peak month for sequential inflation.

It’s important to note that these slowdowns in the inflation rate don’t mean that prices are actually falling. Instead, they mean that they’re not rising as quickly. And although that may sound like a pretty weak reason for encouragement, it counts for more because a major reason that inflation is considered so dangerous is that it tends to feed on itself – and actually grow at increasing rates.

So slowdowns are good news, even if they’re not good enough news. Moreover, the revisions for two of the last three months have been downgrades; in other words, since October, on net, headline inflation has been weaker than originally estimated.

Revisions haven’t had the same effect on so-called “core inflation” (which strips out food and energy prices because they’re viewed as unusually volatile for reasons having little or nothing to do with the economy’s supposed susceptability to inflation). But the absolute rates have been lower than those of headline inflation, and the rates of change have fallen on net since October, too.

Dec-Jan:                        0.03 percent   now 0.05 percent

Jan-Feb:                        0.10 percent    now 0.15 percent

Feb-March:                   0.34 percent    now 0.30 percent

March-April:                 0.92 percent    now 0.86 percent

April-May:                    0.74 percent    now 0.75 percent

May-June:                     0.88 percent    now 0.80 percent

June-July:                     0.33 percent     now 0.31 percent

July-Aug:                      0.10 percent    now 0.18 percent

Aug-Sept:                     0.24 percent     now 0.25 percent

Sept-Oct:                      0.60 percent     unrevised

Oct-Nov:                      0.53 percent     now 0.52 percent

Nov-Dec:                     0.55 percent     now 0.56 percent

Dec.-Jan:                     0.58 percent

But the real importance of those baseline effects and revisions come through in the annual inflation data. The table below shows the annual rates of change by month starting again in January, 2021. The left and center columns show the previous estimates and the revisions, and the right column shows the revisions of these rates for the last few months of baseline year 2019-2020:

Jan:                             1.37 percent    now 1.36 percent

Feb:                            1.68 percent    unrevised

March:                       2.64 percent     now 2.66 percent

April:                        4.16 percent      now 4.15 percent

May:                         4.93 percent      now 4.94 percent

June:                        5.32 percent       now 5.34 percent

July:                         5.28 percent      unrevised

Aug:                        5.20 percent       now 5.21 percent

Sept:                        5.38 percent      now 5.39 percent

Oct:                         6.24 percent      unrevised               2019-20 from 1.19 to 1.18

Nov:                        6.88 percent      now 6.83 percent  2019-20 still 1.14

Dec:                        7.12 percent      now 7.10 percent   2019-20 from 1.31 to 1.28

Jan:                         7.53 percent                                     2019-20 from 1.37 to 1.36

The big takeaway: The November and December annual inflation rates were both revised down by non-trivial degrees, and the baseline effects for October, December, and January have gotten bigger (because the annual inflation rates for 2019-2020 for these months have been revised down, too.

As with their monthly counterparts, the absolute annual core inflation rates are lower, the baseline effects aren’t quite as great, but they’re present anyway:

Jan:                        1.40 percent      now 1.39 percent

Feb:                       1.28 percent       now 1.29 percent

March:                   1.65 percent      now 1.66 percent

April:                     2.96 percent      now 2.97 percent

May:                      3.80 percent      now 3.81 percent

June:                      4.45 percent      unrevised

July:                       4.24 percent      now 4.20 percent

Aug:                      3.98 percent      now 3.96 percent

Sept:                      4.04 percent      unrevised

Oct:                       4.58 percent      now 4.59 percent

Nov:                      4.96 percent      now 4.95 percent    2019-20 from 1.63 to 1.64

Dec:                      5.49 percent      now 5.48 percent     2019-20 from 1.61 to 1.60

Jan:                       6.04 percent                                       2019-20 from 1.40 to 1.39

The baseline effect distortion of both sets of inflation figures should end when the February statistics come out (next month). Unless new revisions change the picture? But there are several other reasons inflation may moderate further going forward.

The economy’s widely predicted growth rate for the first quarter of this year is predicted to be wheezing and even negligible. As long as it lasts, much more sluggish economic activity should undercut price increases. (At the same time, what may be in store is stagflation – a punishing combination of weak growth and strong inflation.) The new CPI figures may well persuade the Federal Reserve to tighten monetary policy earlier and more vigorously than currently expected, which should also slow growth. (The Fed’s preferred measure of inflation, called the Personal Consumption Expenditures index, or PCE, will be updated later this month. It usually tracks the CPI pretty closely.) And rising prices seem to have put further economic stimulus off the table in Congress. 

Another (and maybe final?) V-shaped pandemic recovery, prompted by the fading of the Omicron CCP Virus variant, could always overcome all these growth obstacles. So could continuing supply chain snags and shortages – especially in industries like semiconductors, whose products are used in so many products. Or all these uncertainties and wildcards could keep the economy and inflation in a turbulent state, and keep complicating policymakers’ challenges in simultaneously fostering adequate growth and acceptable inflation.       

Im-Politic: Elizabeth Drew Remains the Consummate Insiders’ Champion

Tags

Beltway, bipartisanship, chattering class, Cold War, conservatives, Elizabeth Drew, ideologues, Im-Politic, Mainstream Media, pragmatists, Republicans, Ronald Reagan, stagflation, Tea Party

You don’t have to be thrilled with Tea Party Republicans to recognize that Elizabeth Drew’s genteelly sneering new article on the faction and its role in American politics these days superbly illustrates many of the biggest problems of the nation’s public life and especially of the Mainstream Media that cover it.

In a very important sense, Drew is no longer a pillar of the national journalistic establishment any more. At 78, she’s not cranking out copy frequently any more. But she does still write periodically for The New York Review of Books and, according to the Washington Post, she’s a “recent discovery of a new generation of journalists” who view her as a mentor. (Yes, that was meant as a compliment.) And starting in the 1960s, her detailed chronicles of political and policy battles for The Atlantic and The New Yorker were considered must-reads by the chattering class.

It’s not that Drew hasn’t done some insightful reporting and analyzing (though none of it comes to mind). But her latest piece betrays a blind spot regarding previous eras of American politics, including in her prime, that were more greatly and dangerously flawed than she remembers – and possibly than she realized at the time (which would be remarkable, considering all of her reporting on the Watergate years). And her rose-colored glasses have produced ongoing prejudices that mirror those of entirely too many of her colleagues today.

According to Drew, the Republican party today is “Divided and Scary.” And the Tea Party is largely to blame.

Its members are “purists” who “oppose any expansion of the federal government.” They are therefore the bane of the “pragmatists” in the party and throughout the capital who recognize that “without compromise there cannot be governing.” They are simply concerned with “making a statement and keeping their supporters fired up.” “[L]ike the NRA, they’ve figured out that absolute obstruction, outrageous as it may seem to others, can be a winning strategy.”

They fail to appreciate the solid conservatism of the likes of Senate Majority Leader Mitch McConnell and House Speaker John Boehner – although she upbraids these GOP mandarins for not acting like “the Republican congressional party of the 1990s, much less the 1960s….” Their main sin? Rather than genuinely “wanting to work with the president and show themselves as ‘positive’,” they have focused on efforts to “repeal, revise, and overturn a great deal of what Obama has achieved through laws and regulatory actions and executive orders.”

Among priorities considered by Drew as beyond the pale are attempts to:

>“roll back some of the president’s immigration initiatives, a move that could end in the deportation of millions….” (Presumably all Democrats are okey dokey with Obama’s exeutive amnesty and dedication Open Borders);

>”impose more sanctions on Iran that would undermine the administration’s current negotiations on nuclear capacity.” (I guess no Democrats supported the legislation?);

>and propose “a number of bills to overturn regulations adopted during Obama’s first six years, particularly those of the Environmental Protection Agency curbing carbon pollution.” (Of course there are no serious Constitutional issues at stake here.)

What a far cry from the Golden Age of the 1990s in particular, when “During the Clinton presidency, ten to twenty Senate Republicans were willing to work with the White House to try to negotiate deals on shared goals.”

But in fact, Drew is just getting warmed up. She charges that Republican efforts to transfer some power over programs from Washington back to the states, especially those that “allocate benefits,” contain “a trace of the old championing of ‘states’ rights’—code for fending off federal efforts to impose equity in the treatment of the races.” Indeed, the Republicans have become even worse than in their Nixon-Agnew law and order days, and are now addicted to “playing to anti-black and anti-minority sentiment in order to maintain their electoral strength.”

In Drew’s eyes, almost needless to say such despicable views lie behind the entire Republican party’s shift to “perfervid opposition to liberalization of immigration, combined with antipathy toward and fear of the growing numbers of minorities in this country. Not only racism but nativism is alive.”

Drew is correct on some points. Too many Republican Senate candidates in 2012 in particular were indeed “screwballs” (at best), harboring particularly hateful views towards women. Capitol Hill Republicans’ focus today on the Keystone pipeline and on rolling back even weakfish Wall Street reform is, respectively, bizarre and reprehensible.

But most of Drew’s critique is so one-sided that it’s clear she simply opposes most right-of-center positions on major issues. That’s her right, but why doesn’t she have the honesty to come out and admit her biases? (The same of course goes for so many of those younger mainstream journalists she’s reportedly been mentoring.)

More disturbing is Drew’s apparent obliviousness to the Tea Party’s belief that many of the nation’s worst problems today and recently stem precisely from the bipartisan, compromising impulses that she so reveres. She of all people should remember the bipartisan Cold War consensus that led directly to Vietnam. How well, moreover, has the federal government really served the economic interests of blacks and other minority Americans, especially once the great and needed battles of the Civil Rights era were fought and won? And what of the completely bipartisan creation of an economy based on binge-borrowing and consuming, which triggered the financial crisis and all of its painful aftermath?  

Nor does Drew evince any awareness that the taxonomy she (and others of her ilk) use to describe the conflict between insiders and outsiders is exactly the same that was used to describe Washington battles in the 1980s. Then it was commonplace for the commentariat to view former President Reagan’s most conservative supporters as “ideologues” and “cowboys” who threatened to endanger the nation and even blow up the entire world with their primitively radical and hawkish views. Their opponents within Republican (and often White House) ranks were supposedly the “pragmatists,” who luckily recognized the limits that domestic and foreign realities imposed on American actions, and who were determined to neutralize their less sophisticated rivals. Drew certainly displays no awareness that the Cold War might not have been ended and stagflation not cured (or at least not so quickly) had the “realists” and their conventional wisdom prevailed.     

I could go on. The main point, however, is not to insist that the Tea Party – and other outsiders – have always been right, and that Drew and the insiders have always been wrong. It’s to observe that Drew, the avowed pragmatist, and too many of her journalistic colleagues who are supposed to chronicle Washington and similar controversies with some degree of objectivity, won’t even consider them legitimately debatable. They’re smugly convinced that they hold a monopoly on truth, and unthinkingly equate their own strongly elitist prejudices with sweet reason itself.

Drew reportedly likes to recall her humble, outside-the-Beltway beginnings, when she was “Little Lizzie Brenner from Cincinnati.” Her latest piece is a sad reminder of how little of real importance she seems to have learned since those days.