Inflation for Urban Wage Earners & Clerical Workers (CPI-W) = 7.6%. Fed is still pouring fuel on the raging fire. Most reckless Fed ever.
Fed Chair Jerome Powell’s reaction to today’s WOOSH inflation blowout, as captured by cartoonist Marco Ricolli for WOLF STREET.
The broadest Consumer Price Index (CPI-U) spiked by 0.8% in November from October, and by 6.8% from a year ago, the highest since June 1982, according to data released by the Bureau of Labor Statistics today.
But it gets better. The Consumer Price Index for All Urban Wage Earners and Clerical Workers (CPI-W), the index upon which the Social Security COLAs are based, spiked by 7.6% in November year-over-year — exceeding even Mexico’s soaring inflation rate — and the worst since January 1982.
But in January 1982, inflation was coming down; now inflation is surging. At the time, the Fed’s short-term interest rates were over 13%; now they’re still near 0%, and the Fed is still printing $105 billion in the current period from mid-November through mid-December, though it will reduce the money printing further.
Nearly all interest rates and yields, including on risky junk bonds, are now negative in real terms. This – the Powell Fed that unleashed this monster and has been feeding it month after month – has got to be the most reckless Fed ever.
Inflation without food and energy – OK, Americans, go ahead and try to live without food and energy – spiked by 4.9%, the most since June 1991. This shows how embedded inflation is now in the economy beyond energy, and it has started to hit services, which is hard to explain away by jabbering uselessly about “bottlenecks and shortages.”
Inflation in consumer prices is another term for the loss of the purchasing power of the consumer’s dollar. In November, the purchasing power of what was $1 in January 2000 dropped to 60.81 cents:
Rent Factors, nearly one-third of CPI, still lag far behind reality but started to rise.
Two measures of rent make up 32% in the Consumer Price Index. In 2020 and early in 2021, these two rent factors dropped sharply and pushed down CPI, even as other prices were surging, thereby keeping CPI from spiking even more. They turned around in June and have been rising every month since then, but they’re still holding down CPI, even as market rents in the 100 largest cities have been spiking for months.
“Rent of primary residence” (makes up 7.6% of overall CPI), rose by 0.4% in November from October, and by 3.0% year-over-year but is still far below where it had been before the pandemic and far, far below the surge in market rents, which are only gradually filtering into CPI (red in the chart below).
“Owner’s equivalent rent of residences” (makes up 23.5% of overall CPI) is used as a substitute for the costs of homeownership. It is based on surveys that ask what homeowners think their home might rent for. It rose 0.4% for the month, and 3.5% year-over-year.
These rent measures are still holding down CPI (6.8% in November), but as they’re catching up little by little with reality in the market, those rent measures will continue to rise, and given their 32% weight in the index will push CPI higher, and it has nothing to do with supply chains and bottlenecks; these are services:
Actual home prices have spiked by historic amounts. According to the Case-Shiller Home Price Index – it tracks price changes of the same house over time and is therefore a measure of house price inflation – has soared by 20% year-over-year (purple line below), while “Owner’s equivalent of rent,” which is supposed to track the costs of homeownership, is just starting to ease higher (red line). Both indexes are set to 100 for January 2000:
Food costs (makes up 14% of overall CPI), jumped 0.7% for the month and 6.1% year-over-year, with the CPI for meats jumping by 16% year-over year.
Energy costs (7.5% of overall CPI) spiked by 3.5% for the month and by 33% year-over-year:
- Gasoline +58.1% year-over-year
- Utility natural gas to the home: +25.1% year-over-year
- Electricity service: +6.5% year-over-year.
The CPI for used cars and trucks (makes up 3.4% in overall CPI) jumped by 2.5% for the month, and by 31.4% year-over-year.
This is going to get worse over the next couple of months because used-vehicle wholesale prices, which lead the CPI by about two months, started spiking again, after a pause, and for November were up 44% from a year ago!
The jump in used-vehicle retail prices picked up by the CPI for November reflects wholesale price gains in roughly September. But in the two months since September, wholesale prices have spiked by another 13.5%, which will hit used vehicle CPI in December and January – something to look forward to (chart shows index value, not year-over-year percent change):
The CPI for new cars and trucks (makes up 3.9% in overall CPI) spiked by 1.1% for the month and by 11.1% year-over-year.
In the history of this CPI, there were only a couple of months in 1975 when new vehicle prices rose even faster topping out at 12.7% in March 1975. We may be looking at what in a few months from now will be the worst-ever inflation in new vehicles as consumers no longer care about price and pay whatever, even thousands of dollars over sticker (chart shows the year-over-year % change):
It’s going to be a bitch to get this under control.
This inflation is spiraling out of control because consumers and businesses are now willing to pay the higher prices. The dam has broken. The inflationary mindset has changed for the first time in decades. And this is happening as nearly unlimited amounts of newly created money washing around the globe has destroyed all sense of price resistance. And the Fed is still making it worse by pouring more fuel on the raging fire.
Trying to get this under control will be tough and will take a long time. Inflation doesn’t even react to monetary tightening for a year or more, and then only gradually. And tightening hasn’t even started yet. The Fed is still repressing interest rates and it’s still printing money – which positions it as likely the most reckless Fed ever. And this inflation isn’t going away under these circumstances.
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