Memo to Nancy Pelosi.
It is no longer necessary for the House to vote on the "Inflation Reduction Act".
Joe Biden stated yesterday that inflation was zero percent.
 |
| Source: https://twitter.com/disclosetv/status/1557372364173746179 |
If inflation is at zero percent why do we need an "Inflation Reduction Act"?
Shouldn't Biden get on the phone right away to Nancy Pelosi and tell her not to worry about voting on that bill and focus on something else?
One suggestion might be controlling the Southern Border.
Or the FBI.
Of course, inflation is not at 0%.
Wednesday's CPI report indicated that consumer prices were up 8.5% in the last 12 months.
The zero percent just indicated that prices between June and July had not gotten any worse overall.
At 8.5%, we are still seeing the third highest annual inflation rate in any month in the last 40 years (last month was higher at 9.1%).
 |
| Source: https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm |
The flat increase from June, 2022 to July, 2022 only came about because energy costs went down and offset price increases in almost everything else.
Energy costs declined by 4.6% for the month (led by declines in gasoline and fuel oil prices).
However, food was +1.1% for the month (+13.2% annualized rate), electricity was +1.6% in July (+19.2% annualized) and new vehicles were +.6% (+7.2% annualized).
Despite the monthly decline in energy costs in July, energy is still +32.9% and food is +10.9% over the last 12 months.
These inflation numbers still only include a mere 5.7% increase in the cost of Shelter over the last year.
How can shelter (which makes up 1/3 of the CPI index) be only +5.7% when housing and rent prices have been going through the roof?
Rents are actually +12.4% over the last year in the U.S.
The house price index is +19.7%.
The CPI shelter number is 5.7% while actual costs are at least two times higher due to the fact that the calculation for shelter in the CPI is only done semi-annually and totally ignores the actual cost of housing. It is based solely on a survey of what home owners say they would be willing to rent their house for as well as a survey of what renters say they are paying (referred to as Owners' Equivalent Rent (OER).)
However, since that survey question is only asked twice per year it is totally inadequate to reflect actual costs in a period where prices are increasing quickly.
Considering the fact that shelter is the largest component in the index (33% of the total) it is clear that actual inflation is much higher than what is being reported right now.
When (IF the bureaucrats don't cheat) the shelter number catches up we will undoubtedly see higher inflation pressures based solely on that number even if some of the other components begin to stabilize over time.
This chart by Mike Shedlock shows how far the Shelter component in the CPI has become disconnected from the reality of house prices in times of rapid increases (2003-2007) and (2015-2022).
 |
| Source: https://mishtalk.com/economics/how-the-hell-can-the-fed-find-neutral-when-it-doesnt-know-what-inflation-is?utm_source=substack&utm_medium=email |
To further show you how far out of touch that Shelter number is in the CPI calculation consider the fact that the median monthly rent in the U.S. is now over $2,000/per month.
 |
| Source: Bloomberg News |
Look at the annual rent inflation seen in a sampling of major U.S. cities over the year ended in May.
CPI is only using 5.7% in its inflation calculation for shelter?
Any realistic Shelter number would put the CPI increase at well over 10% year over year.
Zero percent inflation?
We can only wish.
However, as I wrote several months ago, the CPI will decline at some point unless prices literally keep climbing month after month.
At some point, we should see some moderation in the index if for no other reason than the base index gets higher with each succeeding month. However, prices are only going to return to what they were a year ago if we have actual deflation.
At some point the CPI number will come down. That doesn't mean current prices are going to go down.
If gas prices are the same next year that would be a 0% increase in the CPI index. Keep in mind the CPI is only measuring price changes over the last year. The base the CPI is being measured against is getting larger every month for the inflation that started just over a year ago.
Looking at the data I would expect inflation to remain at least 8% through September assuming there is not a total meltdown of the economy that will drastically cut demand pressures.
Last October is when inflation really starting taking off which is going to provide higher base numbers in the CPI calculation for 2022.
I am sticking to the prediction I made in June on CPI that the annual inflation number is unlikely to see much improvement until Fall.
If we do see the annual CPI number drop below 8% in September or October that will be good news for Democrats heading into the mid-terms who will be quick to claim that it was all due to passing the "Inflation Reduction Act".
You can count on that.
You can also count on the fact that Nancy Pelosi is going to ignore my memo.
However, if a trip to the grocery store has not shown you already, we are a long way from zero inflation right now.
No comments:
Post a Comment