The U.S. hit post-pandemic “peak inflation” in June 2022, and the rate of inflation has been steadily coming down on the backend of the inflation peak. If this steady decline continues at the present rate, by this time next year the rate of inflation will have declined close to the FED’s target rate of inflation of 2%, barring any new shocks to the global economy.
As I have explained previously, the post-pandemic economy most closely parallels the post-Word War II economy, when the world was transitioning from a war economy back to a consumer goods economy, with years of pent-up consumer demand. There were shortages of everything because of supply-chains disrupted by the war and the amount of time that it takes to transition production lines from tanks and bombers back to automobiles, for example. Inflation was high for several years as pent-up consumer demand far outpaced the ability of producers to meet this consumer demand. But inflation came down and the American economy boomed as these difficulties in producing goods were eventually resolved and supply caught up to consumer demand.
The problem we have today with inflation is not so much the law of supply and demand, but market concentration among industries with monopoly power pricing, and companies using inflation as a cover for price gouging and raising prices just to increase profits.
The Federal Reserve does not have any authority or the tools to deal with what is actually driving inflation, corporate greed and price gouging. Only Congress can address this problem, and it has yet to do so. MSNBC’s Chris Hayes covered this last week with Congresswoman Katie Porter to discuss how corporations are hiking prices and generating record profits—all under the cover of inflation. (Fully half of the rate inflation is due to corporate greed. The 7.7% inflation rate in October would be 3.85 otherwise, sightly above the Fed target of 2%.)
In the last 2 quarters, Big Oil raked up more than $100 billion in profit, more than all of last year.
Americans are getting fleeced and when @HouseDemocrats acted to stop the price gouging, every Republican in Congress voted no.
They will always side with profits, not people.
— Ruben Gallego (@RepRubenGallego) November 1, 2022
Oil companies have already posted $127 billion in profit this year versus $42 billion over the same period last year.
Folks, inflation isn’t being driven by workers asking for better wages or government spending. It’s being driven by corporate greed.
— Robert Reich (@RBReich) November 6, 2022
The Washington Post reports, Prices rose less than expected in October, as inflation may be easing:
Inflation stayed high but showed signs of slowing in October, as families and businesses continued to face rising costs for basics such as food and rent — and as the Federal Reserve ramped up its efforts to lower consumer prices, even at the risk of forcing a recession.
Prices rose 7.7 percent in October compared with the year before, and 0.4 percent over September, the same rate as the previous month, according to data released Thursday morning by the Bureau of Labor Statistics. That’s far above normal levels, but it was lower than analysts had expected. So the report brought some hope that the soaring cost of living may be easing. Officials at the Fed have made clear that they need to see months of encouraging data to get a sense of how the economy is evolving. The latest data may mark a shift, but they’ll want to see it continue.
“This was good news, but I wouldn’t dramatically change my view of the world based on one data point. We’ve had false dawns before,” said Jason Furman, an economist at Harvard University who was a top economic adviser to President Barack Obama. “One should feel better about inflation today than one felt yesterday. Just not much better.”
The markets rallied on hopes that inflation may have peaked. By midday, the Dow Jones industrial average was up almost 1,000 points, or 3 percent. The S&P 500 rose 4.7 percent, and the Nasdaq climbed 6.2 percent.
October marked the smallest 12-month increase since the period ending in January, and progress looked different through the report. Some categories dropped notably: Prices for used cars and trucks fell 2.4 percent, airfares 1.1 percent and apparel 0.7 percent. In other pockets of the economy, prices were still climbing but at a slightly slower pace than the month before. For example, food was up 0.6 percent in October, after rising 0.8 percent in September.
“This morning’s [consumer price index] data were a welcome relief, but there is still a long way to go,” Dallas Fed President Lorie Logan said in a Thursday speech. And Mary Daly, president of the San Francisco Fed, said Thursday that “7.7 [percent] is not price stability.”
Indeed, policymakers and economists won’t be celebrating just yet. The shelter index made up more than half of the monthly increase, as high rental costs remain despite a recent slowdown in the housing market. Rent was up 0.7 percent compared with the month before, a small ease from September. But overall, rent is up 7.5 percent over the year.
Gasoline prices also rose 4 percent over September, after three months of consecutive declines. Gas is up 17.5 percent over the past year, largely because of Russia’s invasion of Ukraine and the sanctions the West has imposed on a major oil producer. Other oil-exporting nations are also cutting back production.
Voters in Tuesday’s elections told exit pollsters that inflation was among the most important issues swaying their choice, and nearly half of voters said jobs and the economy were the most pressing issue facing the country.
In a desperate bid to get prices down to normal levels, the Fed is raising interest rates at its most forceful pace in decades. But progress has largely been limited to the housing market, and officials have made clear they have a long way to go before letting up. A growing number of economists and Democratic lawmakers say they’re concerned that the Fed will end up slowing the economy so much that it causes a downturn next year.
President Biden on Wednesday pointed to Democrats’ moves to lower prescription drug costs and a steady fall in gas prices since their summer peak. “I can’t guarantee that we’re going to be able to get rid of inflation,” he told reporters. “But I do think we can.”
“I am optimistic — because we continue to grow, and at a rational pace — we are not anywhere near a recession right now,” he said at a news conference to discuss the election results. “I’m convinced that we’re going to be able to gradually bring down prices so that they, in fact, end up with us not having to move into a recession to be able to get control of inflation.” [If the FED doesn’t fuck it up.]
So far, the labor market remains hot and has proved remarkably resilient to the highest inflation levels in 40 years. But that could change if employers start nixing their plans to hire new workers — or lay people off altogether. Already, Silicon Valley is taking a hit, with major companies shedding workers in recent weeks. Facebook parent company Meta announced plans Wednesday to cut more than 11,000 jobs, or 13 percent of its workforce, and is extending its hiring freeze through March. [This is because Meta is proving to be a marketing failure, not because of inflation. Why Meta’s Virtual Worlds Are Failing.]
But for more than a year, officials have taken everything with a dose of skepticism, especially since the data can be noisy and offer seemingly contradictory snapshots of the economy.
Douglas Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office, encouraged patience yet again. The good news. he said, is that overall year-over-year inflation fell below 8 percent for the first time since February. The bad news is that shelter costs remain high, and there isn’t enough evidence yet that the Fed can start to loosen its policies.
“There’s no dramatic disinflationary trend that’s in the data,” he said. “We’ve just sort of been bouncing around an unpleasantly high plateau for months.”
I disagree. Going from 9.1 in June to falling to 7.7, just barely above where we were at the start of the year is disinflationary, not a plateau.
Getting control of inflation is the Fed’s job, and the central bank’s power lies in interest rates. Higher rates cool off demand in the economy by making all kinds of borrowing — from mortgages to business loans — more expensive. Last week, the Fed hiked rates for the sixth time this year, announcing a fourth consecutive hike of 0.75 percentage points. Officials have already said the central bank will raise rates again in December — possibly by 0.50 percentage points now that rates are high enough to start slowing the economy — and continue tightening policy into next year.
“The Fed will be comfortable with half percent, knowing they can go another half percent,” said Diane Swonk, chief economist at KPMG. “That’s not a big step down. They’re still tightening. It was never a pivot.”
Fed Chair Jerome H. Powell emphasized last week that his colleagues were a long way from finished, saying, “We have a ways to go.”
With that commitment comes the growing likelihood that the economy could enter a recession in 2023 once the full weight of the Fed’s rate hikes wash over the economy.
“Has it narrowed? Yes. Is it still possible? Yes,” Powell said last week of the prospect of achieving what’s known as a “soft landing.” “I think we’ve always said it was going to be difficult, but I think to the extent rates have to go higher and stay higher for longer, it becomes harder to see the path.”
A major question is whether prices can be tamed with rate hikes alone. The Fed’s decisions can’t fix certain sources of inflation, like bungled supply chains, worker shortages or Russia’s war in Ukraine. [And corporate price gouging.]
* * *
With the latest batch of inflation data, analysts and Fed officials are likely to pay special attention to rental costs, which make up a large portion of what economists refer to as the “basket of goods” used to calculate what’s known as the consumer price index. So far, rents are showing little improvement.
But the hope is that, eventually, a major slowing in the housing market will pull rental costs down, too. The housing market is the main part of the economy that has responded to the Fed’s rate hikes, since mortgage rates are especially sensitive to the central bank’s decisions. The average rate for a 30-year fixed mortgage, the most popular home-loan product, reached 7.08 percent in late October, causing more prospective buyers to bow out of the market.
As a result, home prices are falling, demand for mortgages is plummeting and, in October, builder confidence fell for the 10th month in a row. On Wednesday, the real estate firm Redfin [one of the corporations responsible for the spike in rents] said it would lay off more than 860 workers, or about 13 percent of its staff, as business fell off.
