This doesn’t even include the spike in food and energy prices over the past few weeks. They’ll show up later.
By Wolf Richter for WOLF STREET.
It would be hilarious, if it weren’t so serious, how the Fed spent a year trying to pull a bag over everyone’s head about inflation being “transitory” even as it was spiraling higher and higher, and as everyone knew that something changed fundamentally in the inflationary mindset among businesses and consumers, after $4.7 trillion in reckless money printing in two years, all-out interest rate repression, and $5 trillion in deficit stimulus spending.
It’s a horror show, the inflation data released today. But it doesn’t yet include the bulk of the crazy price spikes we’ve seen in commodities over the past few weeks, including wheat and fuel; and it doesn’t yet include the bulk of raging housing inflation that the CPI will only gradually pick up. So this is going to get worse.
The broadest Consumer Price Index (CPI-U) jumped by 0.8% in February from January, and by 7.9% from a year ago, the worst since December 1981, according to data released by the Bureau of Labor Statistics today. But back then, inflation was on the way down; now inflation is spiking:
Inflation = loss of Purchasing Power of the Dollar.
Inflation is not a sign of growth, and it’s not a sign of anything positive. It’s just a sign of the loss of the purchasing power of the consumer’s dollar, including the purchasing power of dollar-denominated labor. And this is a long-term cumulative and relentless process that started to accelerate last year. In February, the purchasing power of $100 in January 2000 dropped to a new record low of $59.46. And this is why Americans are in such a sour mood:
Inflation is spreading across the Economy.
The “core” CPI-U, which excludes the now spiking and always volatile commodities-dependent food and energy components in order to measure how inflation has seeped into the broader economy, spiked to 6.4%, the highest since August 1982.
But there’s a huge difference: In 1982, the Fed was trying to crack down on inflation and short-term interest rates were in the double digits.
The last time inflation spiked like this was in 1978, by which time the Fed had pushed the federal funds rate toward 10%.
Now, the Fed is still fueling inflation by repressing interest rates to near 0%, and by just now ending QE after having printed $4.7 trillion in two years. And its massive pile of assets on its balance sheet – the result of money printing – is fueling inflation. Which makes this the most reckless Fed ever, after having committed two years of policy error after policy error:
Inflation in services has started to spike.
How deep has inflation seeped into the economy? Last year, the spike in CPI was blamed on supply chains, chip shortages, factories in China, used cars, new cars – meaning on prices of goods that spiked.
But now inflation in services has started to spike. The CPI for services spiked by 4.8% year-over-year, the highest since June 1991:
Inflation in durable goods and nondurable goods continues to spike.
The durable goods CPI – which includes new and used vehicles, consumer electronics, etc. – spiked by 18.7% in February, by far the highest in the history of the monthly CPI data going back to the 1950s. The prior record was set in 1975, at 14.4% (red line).
The nondurable goods CPI – which is dominated by food, energy, and household supplies – spiked by 10.7%, just a tad above November 2021, and the highest since July 2008 (11.0%), when crude oil was spiking (purple line):
Rampant housing inflation gradually enters CPI.
The single biggest component in CPI is housing costs, accounting for 32.4% of total CPI. They’re tracked by two different measures of rent – the cost of housing as a service rather than an asset.
Both measures started rising in mid-2021, after the pandemic drop, slowly picking up the actual increases in market rents. Both measures are lagging, which guarantees that even if rents were to stop rising in March, those two measures would continue to rise well into 2023. So we already know that the current spikes in market rents through February will put upward pressure on CPI well into 2023 (here is my discussion of this phenomenon).
“Rent of primary residence” jumped by 4.2% in February (red in the chart below). This is based on what tenants reported as their actual rent payments, including in rent-controlled apartments. It weighs 7.4% of overall CPI.
“Owner’s equivalent rent of residences” rose 4.3% (green line). This measure estimates the costs of homeownership as a service and is based on surveys that ask homeowners what their home would rent for. It weighs 24.2% in overall CPI.
Both measures are well below CPI and therefor are still holding down CPI, but they’re holding down CPI less than before, and they will hold down CPI even less going forward:
The actual costs of purchasing a house spiked by 18.8% year-over-year, according to the Case-Shiller Home Price Index, and spiked by over 25% and even over 30% in some markets. I show crazy charts of this raging home-price inflation market by market in The Most Splendid Housing Bubbles in America.
So here are juxtaposed, the exploding house prices as measured by the Case-Shiller index (purple) and the CPI stand-in for homeownership costs, the now slowly rising “Owner’s equivalent of rent” (red). Both indices are set to 100 for January 2000:
“Food at home” inflation spiked by 1.4% for the month and by 8.6% year-over-year. Major categories, and year-over-year inflation rates:
- Beef and veal: 16.2%
- Pork: 14.0%
- Poultry: 12.5%
- Fish and seafood: 10.4%
- Eggs: 11.4%
- Fresh fruits: 10.6%
- Fresh vegetables: “only” 4.3% year-over-year, but they’re now taking off, with a month-to-month spike of 1.3%.
“Food away from home” inflation jumped by 6.8% year-over-year, the most since 1982.
Energy costs exploded by 3.5% for the month and by 25.6% year-over-year. They weigh 7.4% of overall CPI. Among them:
- Gasoline: +6.6% for the month and +38.0% year-over-year. This does not yet include the price spikes over the past three weeks. They’re still to show up.
- Utility natural gas to the home: +1.5% for the month and +23.8% year-over-year.
- Electricity service: -1.1% for the month, +9.0% year-over-year.
And for your amusement, this is how Fed Chair Pro Tempore Powell reacted to the fiasco that he has been instrumental in creating via his money-printing and interest-rate-repression strategies, as captured by cartoonist Marco Ricolli for WOLF STREET:
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