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A more “normal” consumer inflation reading for August belies damage to the economy going forward

  – by New Deal democratInflation, along with the expiration of the emergency pandemic payment, is one of the two big threats to this expansion. This…

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This article was originally published by Bondad Blog

 

 - by New Deal democrat

Inflation, along with the expiration of the emergency pandemic payment, is one of the two big threats to this expansion. This morning August consumer inflation was the lowest in 6 months, up only 0.3% - within the range of a normal reading in normal times. Since wages increased 0.5% in August, this means that real wages increased. Let’s take a closer look.

YoY inflation is now 5.2% (blue in the graph below), but typically inflation has not been a concern unless inflation ex-gas (red) has been in excess of 3.0%. After peaking two months ago at 4.1%, it is now 3.9%:

The spike in inflation has gone on long enough at this point that I expect it to inflict some actual damage on the economy.

Housing (shelter) is over 1/3 of the entire index, and reflects households’ biggest monthly expense. The good news is that on a monthly basis both inflation in shelter (blue in the graph below) and rent increases (red) were within their normal ranges in August:

With the expiration of the eviction moratorium due to COVID, most observers are expecting a rapid increase in rents, which will bleed over into the general shelter index (note that the situation would be much different if price increases in housing as measured by the FHFA or Case-Shiller Indexes were employed).

Further, the increase in new car prices decelerated this month, and used car prices finally hit a wall and actually decreased in August:

On a YoY basis, new car prices are still up nearly 10%, while used car prices are up over 30%!:

Almost certainly, price pressures in these two most important sectors of the consumer economy are now constraints going forward into 2022.

There is some limited good news “upstream” in commodities and finished consumer goods, as the former (gold in the graph below) increased a more “normal” 0.7% in August. While finished producer goods increased a fairly “hot” 1.0% (red):

Residential building materials for the second month in a row held almost steady:

But they are still up over 30% YoY. We need this to decline, sharply, and soon.

There is also some limited good news in the real wages department. Wages (more broadly, household income) failing to keep pace with inflation has been one of the tradition “real” harbingers of a recession:

After several months of decreases, real hourly wages, I.e., wages deflated by consumer prices, increased slightly in August. In the longer view real wages have been more or less flat in the past year, they are down about 3% from their pandemic peak:

As indicated above, heightened inflation has gone on long enough now that I expect some damage to show up in consumer spending. We will get that information on Thursday with the report on retail sales.

Economics

“Culture As An Asset”

#CKStrong Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground…

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#CKStrong

Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground balls.

This is usually a sign of the endgame for markets, i.e,, the precursor to a bear market. Think the “Great Beanie Baby Bubble” of 1999.

In general, there are two types of assets,

  1. They can be rare—gold bars, diamonds, houses on Victoria Peak, bottles of 1982 Pétrus, Van Gogh paintings, stamps, beanie babies, or baseball cards or
  2. They can generate cash flows over time  – GaveKal

Creating An Illusion Of Scarcity

Scarcity relative to the money stock is what its all about now, folks. 

It probably won’t be long before the Fed has to bailout the baseball card market, no?

Full disclosure,  I do own a Mike Trout rookie card

Given the extreme valuations of all most all asset classes, coupled with the massive amount of money in the global financial system, markets are now really stretching, looking for, and actually attempting to create scarcity as a useful delusion to justify, rationalize, and drive speculation. 

Maybe I will start collecting poop as an “anthropological asset,” put it the blockchain and super charge the price ramp by snapping a few pictures of each sample, converting them to NFTs to load up to the internet.

Then again, maybe all this is signaling the start of a big, big inflation cycle and the markets are looking to get out of cash and protect their purchasing power.   But that’s too rational.  

Can you believe what markets have become, folks?   It is hard to see clearly when everybody is making money. 

 

 

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Economics

US Meat Prices To Remain Elevated Amid Depleted Reserves

US Meat Prices To Remain Elevated Amid Depleted Reserves

Beef, pork, and chicken in US cold storage warehouses have yet to recover from pandemic…

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US Meat Prices To Remain Elevated Amid Depleted Reserves

Beef, pork, and chicken in US cold storage warehouses have yet to recover from pandemic lows and could continue to support higher prices. 

New United States Department of Agriculture (USDA) data shows beef reserves dropped 7.7% from a year ago in August, poultry supplies fell 20%, and pork plunged 44% to their lowest levels since 2017, according to Bloomberg

Jim Sullivan, commercial director for Stable USA, said low meat inventories would suggest meat prices will stay elevated. 

"Prices remain very elevated compared to seasonal expectations," Sullivan said. 

Soaring supermarket prices have been on the radar of the Biden administration as working-poor families allocate a high percentage of their incomes to basic and essential items. Higher food inflation eats away their wages and is why Biden recently increased SNAP benefits by a quarter

Earlier this month, the Biden administration finally addressed inflation as a concern but didn't blame the trillions of dollars in fiscal and monetary policies and labor shortages on increased food inflation but instead placed responsibility on meatpackers. 

White House National Economic Council Director Brian Deese said "pandemic profiteering" food companies are driving up supermarket costs for Americans. This is nothing more than a blame game and failed government policies that have not just increased food prices but have left supply chains reeling due to stimulus checks that disincentivized workers from working. 

New data of low meat supply at US cold storage facility is more bad news for the Biden administration, who will have to develop a new narrative about why meat prices aren't going down. If food inflation remains elevated into early next year, Americans might vote with their wallets during next year's midterms. 

Tyler Durden Thu, 09/23/2021 - 20:00
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Economics

Where Do Monetarists Think the PCE Price Level Is Going To?

From an email from Tim Congdon, at the International Institute for Monetary Research (9/20): I suggest that a more plausible figure for end-year PCE annual…

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From an email from Tim Congdon, at the International Institute for Monetary Research (9/20):

I suggest that a more plausible figure for end-year PCE annual inflation is between 5½% and 6%. (The consumer price index – up by 4.5% in the first seven months of 2021 – may finish the year with a rise somewhere in the 6½% – 7½% area.)

The conclusion is based on the following reasoning:

In the background here is the huge overhang of excess money balances. In the year to mid-May 2021 the M3 measure of broad money increased by 35%. The evidence over many decades is that – in the medium term – the growth rates of money, broadly-defined, and nominal gross domestic product are similar. So – unless that 35% number is now followed by a big contraction in the quantity of money – the US economy will continue to be affected by two conditions, specifically,

• ‘too much money chasing too few assets’, and
• ‘too much money chasing too few goods and services’.

Of course the two conditions are interrelated and also interact with each other. Our research emphasized last year that rapid money growth was likely to boost asset prices first, and that has been right. (Incidentally, to attribute the behaviour of the prices of US tech stocks to bottlenecks and supply shortages would be daft. Does one have to say these things?)

What’s the implied path of the PCE deflator, relative to nowcasts and forecasts? See Figure 1, where I’ve used the mid-point of Congdon’s forecast (5.75% December y/y), shown as the red square.

Figure 1: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), Survey of Professional Forecasters August median forecast (green line), FOMC 9/22 projections (blue square). Source: BEA, Cleveland Fed, Philadelphia Fed/SPF, Federal Reserve, and author’s calculations.

The FOMC median forecast is surprisingly similar to the Survey of Professional Forecasters’ median forecast from the preceding month (mid-August). The FOMC members then still perceive a deceleration in inflation in the last half of 2021.

Congdon’s forecast looks plausible given the August PCE deflator nowcast (and even more using the September). However, it’s far outside of the range projected by the FOMC, as shown in Figure 2, which includes the high/low inflation forecasts.

Figure 2: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), FOMC 9/22 projections (blue square), high and low forecasts (dark blue +). Source: BEA, Cleveland Fed, Federal Reserve, and author’s calculations.

In other words, the monetarist view (if I can use Congdon’s view as a proxy) differs from both a mixed bag of mainly mainstream economists (proxied by the Survey of Professional Forecasters) and policymakers (the FOMC).

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