Today, I blow a gasket over the latest inflation data.
As you know, I’ve been very critical of the Federal Reserve’s inaction on the surge in inflation this year. I’ve even gone so far as to compare Jerome Powell to Mad Magazine’s Alfred E. Neuman, of “What, me worry?” fame.
The September inflation data came out this week; anyone want to guess what it showed?
- Consumer prices are rising at their fastest annual pace since July 2008.
- Producer prices rose at a record pace for the sixth straight month.
Are you picturing Jerome Powell playing a fiddle right now, because I am. For months he has told us that inflation is “transitory” and will abate as economic growth slows and supply chains improve. A few weeks ago he called inflation “frustrating.” I bet it’s frustrating to continue to be so wrong about something so important.
How does this impact the average American?
Great question. We found out last week that wages are rising at a 4.6% annual rate, which sounds great until you find out prices are rising 5.4%. This means that “real” wages—or wages after inflation—are actually declining in the U.S. Here’s an article on how much prices have increased over the past year for the goods we buy.
Hold on, Greg, I read somewhere that “core” inflation was up just 4%.
For those of you who might not know, core inflation doesn’t include food and energy prices, which can be very volatile. It’s true it was up only 4% from a year ago, but does anybody reading this not buy gas or groceries? I thought so.
Inflation can come from either the supply or demand side of the economy. Today, we are getting it from both sides, as the money supply is up over 30% since the pandemic started and supply chain issues have increased producers’ costs. The supply issues will get better over time, but as I’ve said before, the money supply almost never goes down.
The Fed has two jobs: keeping prices stable and promoting maximum employment.
In my opinion, price stability should be their only mandate, as sometimes you need to cause a recession to end inflation. Paul Volcker did this in the early 1980s.
For you “Game of Thrones” fans: Picture the Fed as the Night’s Watch of inflation. Instead of protecting us from wildlings and White Walkers, they keep inflation at bay. How do they plan to defeat inflation this time? Tapering. Yes, I said tapering.
The Fed is planning to gradually reduce the amount of assets it purchases each month (currently $120 billion) to support the economy. Once those purchases fall to zero—which will probably be in mid-2022—they will start bringing rates up. Too little too late, in my opinion.
Now that you depressed me, any good news here?
A little. Real estate has traditionally performed well during periods of inflation. Am I legally obligated to mention I’m a real estate economist, so maybe you should verify that statement? Can I also mention that now would be a good time to lock in a mortgage rate before this inflation pushes them higher?
For anyone on social security, the cost-of-living adjustment for next year will be 5.9%, the biggest increase in 40 years. That should make my parents happy.
Sorry about the long rant today, but this really gets me going. Please don’t let my anger prevent you from having a great weekend.