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Price Stability? Or The Appearance Thereof?
The Fed, we've just learned, is considerably less optimistic about the path of core inflation than they were just a few months ago.
The new SEP found officials suggesting we might look up later this year and discover that underlying price growth is still hanging around 4%.
Of course, you didn't need a panel of economists chaired by a lawyer to tell you that. You could just look at the path of core inflation or, if you don't like charts, you might go out to lunch or get a haircut or pay for som
I don’t believe an actual 2 handle for inflation is anywhere in the cards for a while yet but I have started seeing more and more stuff on sale. I’m a red meat fan (find what you love and let it kill you, some say) and I was able to buy two nice 10 oz KC Angus strips for $6 each in the last couple weeks. Early this week the price on my favorite Angus Filet Mignon was priced at $11.29, not on sale. That’s down by 60% since last year and, yes, it was delicious. Cars are starting to offer deals, although I saw a new Lucid bargain priced? with a $1650 lease payment. My catalogs have sales everywhere and all that inventory still needs to be soaked up.
Thanks for your always useful insights, but especially this one.
Certainly an unpleasant truth about disinflationary enablers through globalization. It was indeed a Faustian bargain to trade good jobs for goods. And you make an excellent point about the pricing of food and energy, to which I would add the pricing of living spaces.
It’s a funny thing about being a human type of critter: It’s easier to look backward and experience errors and failures multiple times than to have the presence of mind to foresee the future. Will we learn from this exercise? Doubt it.
I always hoped (and I believe Kissinger did as well) that China would consider a more open style of government. So far, not true.
Whither to from here? What are the evolving opportunities for manufacturing? Will the Fed be able to address the inflation that seems to be unmanageable in the US economy? I imagine some manufacturing will return to the US. I just wonder if we’ll be able to pay our own people enough to enable them to manage the costs of living here, such as buying a home at a reasonable cost and feeding and educating one’s children.
Thanks once again, Walt, for sharing your perspectives.
I’ve come across a factoid that makes a nice counterpoint to your reply; it illustrates one tiny example of how competition can evolve in response to inflation and deglobalization. In May, reports came out showing that the top downloaded shopping app in the US was not Amazon, Walmart, Target, etc., but Temu. Discerning shoppers (i.e., those who aren’t interested in $14 shoes) have likely never heard of Temu, but there it was: top of the list in the US… and the UK, Germany, France, Spain, Italy, and 8 other countries. Temu is the international low-price ecommerce division of China’s PDD. Walt has frequently commented on the plight of workers unable to keep up with inflation, and it’s no surprise that low-cost supply is finding that demand. US workers who need “stuff” will rejoice at buying from someone who can make Walmart look like they’re price gouging.
A couple things struck me about this. Globalization used to be viewed simplistically as US retail seeking “the China price”. Now we’ve assumed deglobalization is some act of volition by US companies to restructure their supply chains, optimally or not. But the China price is still out there. What happens when globalization comes back the other way, from manufacturer direct to consumer, whether US companies like it or not? So disinflationary “enablers” simply become “factors” that have to be competitively reckoned with and which may prove as sticky as we think inflation is today. Temu (and Shein, and likely others) are still just toddlers. But when one can undercut “everyday low prices”… by 30% … I suspect we’ll be hearing more about the US growth of these companies and the attendant economic implications.
The idea that globalization can involuntarily force disinflation by churning the domestic scene is hardly new. My first car was a 1982 Honda Civic and I bought it despite the “Japan on the rise” hysteria back then. We were all fed up with inflation and just needed alternatives.
My own pair of $14 shoes from Temu will show up in a few days. It will be interesting to see how that experiment turns out.
Reported CPI understates the true increase in living expenses (call that “actual inflation”).
The CPI methodology has been changed over the decades; for probably-obvious reasons, this has been in ways that lower CPI. Substitution and hedonic adjustments are two examples. CPI calculated as it was in Vockler’s time would probably be several points higher. This link goes into detail, some of which I would use as issue-spotting rather than given-truth. http://www.shadowstats.com/alternate_data/inflation-charts
OER, the single largest CPI component, is a wooly concept fuzzily implemented. I suppose the logic is that people don’t “need” to buy their shelter so we’ll substitute the guessed cost to rent it, but people don’t “need” to eat meat or buy new cars or take vacations. Inflation should measures the cost of how people do live, not how some theorist thinks they should live. The correct measure is not what homeowners could rent their houses for, but what it costs them to buy the house. OER does track directionally with house prices, but with much lower amplitude. During house price bubbles (like now), CPI far understates true inflation.
I love your “wooly concept fuzzily implemented” phrase. I wrote this down to remember. BTW – I searched it in Google and didn’t get any hits. Cheers!
FWIW, experts say that CPI far understated inflation (due to housing costs) last year but is presently overstating it…
What would you propose, Walt?
Inflation seems worth measuring and thus we have to use statistics, which are always going to be subject to nitpicking expert debate.
Besides which, you know why food and energy are excluded. They’re usually volatile, up and down and, even when they’re going one way (like last year), they’re not really under the control of the US, either the government or the Fed. And, frankly, the US, with its domestic oil production, is better placed than most.