Insidious progress of inflation
Inflation was never going to go back to what it used to be. scary ending of horror movie, after finally relaxing, bursts through the window and grabs us by the throat. Returns have always been insidious, like crawling through the supermarket aisles trying to drain our wallets.
Although markets were caught off guard by the momentum of rising inflation in January, march upward for months With a determination that would be almost admirable, if it weren’t so annoying.
January was no deviation from disinflationary trends, a fluke, or a detour.it was 3rd month The month-to-month increase in the consumer price index (CPI).
It’s a rarer phenomenon than you might think. I looked at the numbers going back to 1947. Only 36 seasons have passed yet. The inflation rate rose for the third consecutive month. The typical pattern is one of pushing and shoving, rising and falling, even during periods of high inflation. Inflation has only increased since November.
If the monthly reading rises again in February, it would be the fourth straight month of accelerating inflation, as the Cleveland Fed’s inflation nowcast shows. This has only happened seven times since 1947.
New Yorkers chat during their lunch break at a Broadway drugstore in Manhattan, New York City, February 1947. (Eric Schwab/AFP via Getty Images)
In other words, we are experiencing A rare persistent phenomenon of accelerating cost of living increasesare at serious risk of falling into. Historically abnormal long-term inflation era. It increasingly appears that the disinflation was temporary and we are now returning to an economy plagued by high inflation.
This does not mean we will return to the inflation levels seen during the worst period of 2022. Barring a large unexpected supply shock or unexpectedly rapid easing by the Federal Reserve, the 9 percent annual increase in the consumer price index will not return. , or perhaps a politically impossible massive fiscal expansion. It is likely that inflation will stubbornly refuse to stay below 3%, or if forced into overly accommodative monetary and fiscal policies, inflation will rise to 4% or 5%. There is a possibility that it will rise.
Retail sales have little therapeutic effect
January retail sales figures released on Thursday gave the market some reassurance that the economy is not as overheated as employment and inflation data suggest. Retail sales decreased by 0.8%This is a much larger contraction than the visceral 0.1 percent that Wall Street shamans use to predict the future.
But here too there was reason to remain cautious. Please keep in mind that Retail sales are not adjusted for inflation. If you look at core retail sales excluding gas stations and restaurants, most of the sales are merchandise purchases. Commodity prices fell in January. This means that some of the decline in sales was nominal rather than real. In other words, The idea that consumers have “cut back” on spending may be an exaggeration.
Additionally, there were large increases in categories where inflationary pressures increased. grocery store Sales for the month increased by 0.6%, reflecting a 0.4% increase in the Consumer Price Index for household foods.sale at restaurant and bar It rose 0.7%, slightly outpacing the 0.5% rise in the out-of-home food price index. Department store Sales rose 0.5%, indicating continued consumer resilience.
January’s retail sales figures appear to be driven by inflation pushing spending patterns among U.S. households. Due to persistent inflation and rising interest rates, spend more on essentials There are fewer big-ticket purchases that are typically funded, such as food and shelter.
Importance of import
The Bureau of Labor Statistics’ report on import prices deserves even more attention. Overall import prices rose 0.8%, contrary to expectations for a 0.1% decline. Prices of finished consumer goods rose 1.1%. Largest increase in series history dating back to 1989.
The import price is Future indicators of inflation. Many domestically produced parts are imported, which affects domestic prices. And imports account for a significant portion of the consumer goods purchased by American households. The soaring import prices to record highs are due to Signal that inflation is likely to worsen further. At the very least, it should be taken as a warning sign that the period of disinflation in the goods sector, which was a key factor pushing down overall inflation last year, may be over.
No matter how much Wall Street wanted inflation to be a thing of the past; Inflation has other plans.
