Update to Paul Krugman On The Inflation Reduction Act (Updated) (excerpt):
The GOP's main campaign plank is getting sawed off https://t.co/mmj1QeOm8U
— Paul Krugman (@paulkrugman) August 5, 2022
This is a subscriber content piece, but Taegan Goddard summarizes, Inflation Is Coming Down Fast:
Paul Krugman: “Gas prices, defying predictions of a nightmare summer for motorists, are leading the parade… The majority of gas stations in the United States are already charging less than $4 a gallon, and declining wholesale prices suggest that retail prices still have farther to fall.”
“Food prices are also coming down… And business surveys are suggesting a broader decline in inflation.”
“All of this means that official data on consumer prices will almost certainly show much smaller increases over the next few months than the shocking numbers we’ve become accustomed to lately.”
Holding up pretty well. Underlying inflation still high, but good news all the same. Have claims that the numbers are fake started yet? https://t.co/Lq6um3tdWj
— Paul Krugman (@paulkrugman) August 10, 2022
Axios reports, Inflation drops to zero in July due to falling gas prices:
Consumer prices were unchanged in July, as plunging prices for gasoline dragged the Consumer Price Index down to zero. Core inflation, which excludes energy and food, rose only 0.3%, below what analysts expected.
The Labor Department reported that overall consumer prices rose 0% last month, and are up 8.5% over the past year. That compares to a 9.1% year-over-year reported in June.
CNBC: National average for a gallon of gas drops below $4:
The national average for a gallon of gas dropped below $4 on Thursday for the first time since March, in an ongoing sign that inflationary pressures for consumers are easing.
The price for a regular gallon of gas stood at $3.99 on Thursday, according to AAA. That’s more than a dollar below the record $5.02 consumers paid in June, unadjusted for inflation.
Part of the recent decline is thanks to high prices keeping consumers off the road and therefore curbing demand. Additionally, oil prices have dropped sharply, and the government has released barrels from the Strategic Petroleum Reserve, bringing more supply on the market. Some states have also temporarily suspended their gas tax in an effort to partially shield residents from rising prices.
Higher energy costs have been a major driver of inflation, which is running at the hottest level in more than 40 years. The latest consumer price index report, however, showed pressures easing a bit, in large part because of declining energy prices.
Gas Prices See Fastest Decline in over a Decade, Down 83 Cents Since Mid-June: “Gas prices have now fallen for the past seven weeks straight, according to data collected by Gas Buddy.”
The current drop in gas prices continues to be the fastest decline in over a decade.
83 cents down and counting since mid-June.
— President Biden (@POTUS) August 2, 2022
In other words, we hit peak inflation from the global economic disruptions caused by the Covid Pandemic, exacerbated by the Russo-Ukraine war in early June, and we are now in disinflation as the global economy unwinds its supply chain issues.
A word of caution: food prices remain high because of the effects of climate change around the globe, including drought in the Western U.S. and Europe. This is our new normal now.
The Russian invasion of Ukraine has also cut off grain supplies from Ukraine until only recently under an agreement to allow grain shipments to resume, but Russia still threatens Ukraine shipping. Ukraine is also a major producer of sunflower oil. Sanctions against Russia have cut off the supply of fertilizers, of which Russia is a major producer. And of course, how Europe deals with cutting off Russian oil and gas supplies will affect the global market price.
If you are upset about the price of eggs, as I am, this is because of bird flu spreading through flocks in the U.S., forcing the destruction of the flocks to contain bird flu. It takes time to rebuild the flocks of chickens to previous levels of production. This affects the cost of a number of products. I haven’t seen anything about bird flu infecting turkey production, but keep an eye out this as a reason for the cost of your Thanksgiving turkey.
Key takeaway: Food prices have nothing to do with Democratic economic policies, and Republicans are climate deniers. Their decades of blocking legislative responses to climate change are a major contributing factor to the climate crisis we are in right now, resulting in higher food prices. Don’t blame the Democrats, blame the anti-science climate deniers.
The rise in core inflation represents a major deceleration from the 0.7% that measure increased the previous month.
Why it matters: Falling gasoline prices are clearly giving American consumers some inflation relief, and the broader inflation picture was more favorable in July than economists had expected.
By the numbers: Gasoline prices fell 7.7% in July, dragging down headline inflation. Other items with falling prices included used cars and trucks (-0.4%) and airfares (down 7.8%).
- But rents kept rising, a major factor in stubbornly high underlying inflation. Renters faced a 0.7% rise in costs.
Decelerating inflation is critical to inflation psychology: “Inflationary psychology can become a self-fulfilling prophecy, because as consumers spend more and save less, the velocity of money increases, further boosting inflation and contributing to inflationary psychology.”
CNBC reports, Consumers expect inflation to slow down, a big win for the Fed:
The consumer outlook for inflation decreased significantly in July amid a sharp drop in gas prices and a growing belief that the rapid surges in food and housing also would ebb in the future.
The New York Federal Reserve’s monthly Survey of Consumer Expectations showed that respondents expect inflation to run at a 6.2% pace over the next year and a 3.2% rate for the next three years.
While those numbers are still very high by historical standards, they mark a big drop-off from the respective 6.8% and 3.6% results from the June survey.
Through June, food prices rose 10.4% over the past year, according to the Bureau of Labor Statistics. They are still expected to climb 6.7% over the next 12 months, but that’s a decline from the June survey of 2.5 percentage points, the biggest fall in a data series going back to June 2013.
Likewise, respondents see gas prices, which rose 60% over the past year, increasing at just a 1.5% pace over the next year, a slide of 4.2 percentage points from June, the second-biggest monthly decline in the survey’s history.
The price of regular gas has come down about 67 cents a gallon over the past month though it remains 87 cents higher than a year ago, according to AAA. Commodity prices overall have been falling significantly as well.
Finally, home prices are expected to rise 3.5% from June’s 4.4%, the lowest projected gain since November 2020.
Five-year inflation expectations also slipped, dropping 0.5 percentage point to 2.3% [Not far off the FED’s target rate of 2%, and in line with recent historical rates.]
CNBC adds, The easing of inflation pressures is giving the economy some breathing room, for now:
If inflation has been the biggest threat to U.S. economic growth, then July’s data should provide signs that there’s at least some relief in the pipeline.
Prices were flat for the month as gauged by the items that the Bureau of Labor Statistics tracks for its consumer price index. That marked the first time the aggregate measure hadn’t posted a month-over-month increase since May 2020, when the widely followed index showed a modest decline.
Just a month ago, CPI posted its fastest 12-month gain since November 1982, following a trend that helped send economic growth into contraction for the first half of the year, stirring up fear of a recession.
But with at least the short-term trend indicating the rate of price increases is abating, economic optimism is perking up.
No recession, for now
“The whole recession narrative really needs to be put on a shelf for now,” said Aneta Markowska, chief economist at Jefferies. “I think it’s going to be shifting to a stronger-for-longer narrative, which is really supported by a reversal in inflation.”
Markowska, whose forecasts this year have been accurate, sees solid growth in the near term, including a 3% growth rate in the third quarter. The Atlanta Federal Reserve’s GDPNow gauge, which tracks economic data in real time, pointed to a 2.5% growth rate in a Wednesday update, up 1.1 percentage points from its last one on Aug. 4.
However, Markowska also expects pressures to intensify in 2023, with a recession likely in the back part of the year.
Only if the FED fucks up and fails to correct its monetary policy in real time to changing economic conditions.
Indeed, there was a little bit for both arguments in the CPI report.
Most of the tempering in inflation came because of a fall in energy prices. Gasoline slid 7.7%, the biggest monthly decline since April 2020. Fuel oil tumbled 11% as energy-related commodity prices were off 7.6%.
Transportation services cost increases also came off the boil, with airline fares tumbling 7.8% to reverse a trend that has seen tickets surge 27.7% over the past year.
But there were few other signs of inflation declines in the report, with food costs particularly high. The food index, in fact, rose 1.1% on the month, and its 10.9% pace over the past 12 months is the highest since May 1979.
See explanation above.
People keep spending
Despite the surging prices, consumers have been resilient, continuing to spend even with inflation-adjusted wages contracting 3% over the past year.
Jonathan Silver, CEO of Affinity Solutions, which tracks consumer behavior through credit and debit card transactions, said spending is at a healthy pace, rising about 10.5% over the past year, though inflation is influencing behavior.
“When you start to look at specific categories, there’s been a lot of shifting in spending, and as a result, some categories are being impacted more than others by inflation,” he said. “People are delaying their spending on discretionary items.”
For instance, he said department store spending has fallen 2.4% over the past year, while discount store spending has risen 17%. Amusement park spending is down 18%, but move theaters are up 92%. Some of those numbers are influenced by rising prices, but they generally reflect the level of transactions as well.
As inflation eases, Silver expects discretionary spending to increase.
“We believe there will be a spike later in the year that will create an upward slope to the spending in key categories where the consumer has been delaying and deferring spending,” he said. “Consumers may get a holiday present of some relief on food prices.”
In the meantime, the year-over-year inflation pace is still running at 8.5%. That’s just off the most aggressive rise in 40 years and a “worryingly high rate,” said Rick Rieder, chief investment officer of global fixed income at asset management giant BlackRock.
At the center of worries about global growth is the Federal Reserve and concerns that its interest rate hikes aimed at controlling inflation will slow the economy so much that it will fall into recession.
Following Wednesday’s report, traders shifted their bets to expecting the Fed to hike just half a percentage point in September, rather than the previous trend toward 0.75 percentage points, a move that Rieder said could be mistaken.
“The persistence of still solid inflation data witnessed today, when combined with last week’s strong labor market data, and perhaps especially the still solid wage gains, places Fed policymakers firmly on the path toward continuation of aggressive tightening,” he wrote.
Think of it this way: it was not just humans who became ill with a global pandemic of Covid. The global economy became ill also. The global economy did not die from Covid because of government interventions around the world. The global economy is recovering from its bout of Covid, but like so many humans, it has a case of long-haul Covid. Science is still trying to understand long-haul Covid, and how best to treat it. This is a work in progress.
The economy is responding to the Covid shock remarkably as one would expect from prior historical experience from the post-World War II era, when there were several years of inflation as the economy converted from the “arsenal of democracy” war footing back to a consumer economy, and years of pent-up consumer demand during the war and short supply of consumer goods fueled inflation. It all worked itself out, just as the current inflationary period is already beginning to work itself out.
“The Greatest Generation” did not panic, and neither should you.
The GQP doesn’t need plans to help the economy, as soon as abortion is illegal everywhere Baby Jesus is going to buy us all Cadillacs.
There’s a buttload of stuff to run on in 2022.
There’s Dobb’s and school shootings and six years of the reality TV show actor’s freak show to run on and no excuses for not gaining seats.
I’ll take my El Dorados in the EV version please. Thanks! ;O)
The GQP wants to make November’s midterms a “gas and groceries” election. Reminder: The GQP has NO policies to deal with inflation. If they can’t explain what they will do about inflation, you should ignore them. Their problem, Republicans know absolutely nothing about economics and cannot offer credible policies.
President Biden plans to go on offense against Republicans’ drumbeat about rising prices by arguing the GOP has repeatedly sided with special interests — “pushing an extreme MAGA agenda that costs families,” according to a White House memo shared first with Axios. “Scoop: Biden’s inflation jujitsu”, https://www.axios.com/2022/08/11/biden-offense-inflation-republicans
Biden is expected to sign Democrats’ climate-health-tax bill, the Inflation Reduction Act, soon after House passage, expected late this week. Biden, Vice President Kamala Harris and the cabinet then will fan out across the country with this message.
The memo — from White House communications director Kate Bedingfield and senior adviser Anita Dunn — argues that Biden’s wins have dealt blows to a parade of entrenched interests.
Among the targets: the pharmaceutical industry, big corporations, the gun lobby and oil and gas companies.
“This is the choice before the American people,” the memo concludes. “President Biden and Congressional Democrats taking on special interests for you and your family. Or Congressional Republicans’ extreme, MAGA agenda that serves the wealthiest, corporations and themselves.”
It’s a message that Democrats running in swing states — including Pennsylvania, Ohio and North Carolina — are already embracing, in an effort to win back rural and working-class votes Dems lost in 2020.