Who cares if the economy is growing if the only people benefitting from it are the ones most insulated from economic shocks?
None of these measures are relevant to 99% of people because labor share of productivity continues decreasing
Until labor share of growth is rebalanced [1] nothing will change for most people and the vast majority will continue to have no power to escape this feast-famine cycle.
The original title here is misleading the report shows a slow down in the inflation rate when looking at the 12 month index. This indicates a 4.8% rate (minus food and energy) compared to something like 5.2% in May.
GDP has been growing for multiple quarters, the unemployment rate is 3.6%, and wages have been outpacing inflation for a while, and we’re hitting under 3% CPI. Core monthly CPI is at the lowest level since Feb 2021. While the other comment about “transitory” may have been sarcasm, it’s looking like the fed was right and inflation is coming under control.
Where’s the hard landing? Where’s @jack’s hyperinflation? When will doomers stop being easy marks?
Labor? No. Corporate profits? Definitely. Can't really have a labor recession when demand for workers exceeds supply, but you'll absolutely see profits compressed.
(commercial real estate and zombie enterprises still going to get hit hard with benchmark rate being held where it is, but that is a slow train wreck over the next 1-3 years as debt hits maturity walls)
Something to note is that the Fed didn't come up with 2%. They cribbed it off the bank of New Zealand two and a half decades ago. 2% might be untenable in a macro with a shrinking working force due to structural demographics (55+ participation is what is holding up US participation rate currently, and those people retire and die every day). The future is unable to repeat the past. 3-4% is probably more reasonable imho. Raising rates forever when you can't get to 2% because of fundamentals is unproductive.
> And high unemployment due to a disabled workforce
Wut? Please prove this assertion wrt the use of the word "high." [1] That's arguably a call for stronger social safety nets [2], not more disabled employment. At least a lot of these folks are able to be on Medicare ("Half of all persons with a disability were age 65 and over, nearly three times larger than the share for those with no disability.") and Social Security.
2% is an arbitrary number, yes. But the fact that there is a target, and that the target is credible is far more important than the actual value. If they changed the value now, nobody would trust the new value and it'd lose all meaning.
I agree that 2% is too low, but the only way to credibly change the number is prove they take the number seriously by getting back down to 2% before they increase it.
0% inflation is a bad thing because it encourages people to put off purchasing things. That means that people who make things lose work. Fewer people are employed; less stuff is made; the economy as a whole doesn't advance.
Low inflation is good for savers, but they'd rather have people invest money than sit on it. Inflation is a punishment for people who take their money out of the system.
The Fed aims for a gentle inflation to nudge people into buying stuff now rather than putting it off until tomorrow. The 2% figure is, very roughly, the amount of inflation that matches the expected systemic unemployment under Okun's Law. ("Laws" in economics are, of course, much less solid than they are in physics, but it does mean there's a model behind it and not just a guess.)
Quite possibly. The theory I was describing assumes indefinite economic growth. There are good reasons to think that there are limits, and we're coming up on them.
We've managed to subvert those limits in the past. Technologically, we could do that with climate change as well, though socially and politically that's much less feasible. That could well mean that we reach the limits of exponential growth sooner rather than later.
That raises an awful lot of questions that traditional economics is not prepared to answer. And a lot of people aren't going to like the answers.
IMO, the Fed should have an unemployment target, not an inflation target. They should lower rates when unemployment is high, and only be allowed to raise them when unemployment is low AND inflation is high.
Now would be a fabulous time to make that switch, since now is one of the few times where this shift in policy wouldn't result in a switch in practice.
Sorry, that meant to say “high employment due to a disabled workforce”. Text to speech error.
I don’t know opinion about the 2% rate, it’s just wet the Fed names for. They’ve said it over and over again that that’s the goal. And you can say it’s made up butt inflation at 4% is unsustainable when wages aren’t rising at the same rate. And when wages do you start to rise?
When workers organize and unionize, which they are not doing fast enough (imho) considering the leverage available to them (due to structural demographics previously mentioned).
That’s my point when inflation, rises and ploy is unionized, and we just go up. And then wages go up there’s less profit for the company so either there’s an economic downturn or there’s inflation again. So the people who control the economy are trying to balance this level between corporate profit and work or revolt. And that has been the so-called 2% sweet spot.
Here in Europe over the last two years the main contributor for inflation are corporate profits (approx. half of inflation) followed by import prices (one third) and labour cost (one quarter) according to an IMF paper [0] published three weeks ago. A historical turning point so far:
>Compared with historical averages, the rising import prices and profit parts replaced labor cost as the main counterpart to inflation over the past two years.
The paper is optimistic that labor costs will "catch up" as it always reacts more slowly but I honestly don't see much left in terms of negotiation power anymore and I think this new reality is seen as a rare opportunity to be cemented.
[Political dimension:
Paradoxically, more votes will the go to (extreme) right wing parties which historically always endorsed "authoritarian corporatism" like in the case of Melloni in Italy, now.
A more "socialist"/"solidarity"/"union" push would be understandable instead the sentiment is hijacked in a spectacular fashion by the "right" and the "left" is successfully discredited as upper middle class obsessing over "identity politics" and depicted as exuding an all permeating suspicion of the worker's class/lower classes in being susceptible to subliminal racism.]
That is not a technical recession. The Eurozone uses a definition quite similar to the US definition [0]. It's like people commenting on the internet get all of their information from other internet comments, and refuse to read actual sources. This is not ambiguous, the current definition of recession has been established for decades.
>Why doesn’t the Committee accept the two-quarter definition?
>The Committee’s procedure for identifying turning points differs from the two-quarter rule in several ways. First, we do not identify economic activity solely with real GDP, but use a range of indicators, notably employment. Second, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, “a significant decline in activity.”
Thanks. The news articles I read last month regarding Eurozone technical recession mentioned Eurostat as their source. Eurostat themselves used the "2 quarters of declining GDP is a technical recession" line:
"The GDP decrease in the euro area is the second consecutive quarterly contraction, which means that the euro area economy is in a technical recession."
Inflation is down, the labor market is robust and we are not in a recession so you can expect that the Federal Reserve will quite likely raise interest rates a quarter point at their next meeting. The decrease in inflation is good news for consumers and for policymakers. We still have a bit to go to get to a level of inflation the Fed is comfortable with. Barring a dramatic change in the labor market or the level of overall economic activity, expect further interest rate increases.
This is my interpretation as an economist not at the fed or in another government agency and with access only to the same public information you have, but with a bit more background in macro. As always, I may be wrong!
Of course the Fed is going to raise rates. We’re still near 5% minus food and energy. It’s been going sideways for the last four months and note that this is not the seasonal rate and that in the winter when the energy prices rise, if food and energy stay at 4.8% then the rate of inflation will start to click up again.
"Inflation is down" is ridiculous spin. No, the rate of increase of inflation is down. Oh, and the last several years of insane inflation still happened. Nothing has changed or improved. Recently, I paid almost seven dollars for a single box of Raisin Bran from a large grocer.
>"Inflation is down" is ridiculous spin. No, the rate of increase of inflation is down.
I don't believe for a second you're actually confused. You know very well that "inflation is down" means the inflation rate is down. If inflation were actually down that would be called "deflation" and no one would be celebrating (except the goldbugs).
What news we have is objectively both a change and an improvement. Pretending otherwise is ridiculous. The inflation rate is way down by all metrics.
And it was never all that bad to start with. It never even hit 10%. Inflation was a problem but one modern governments run by adults are demonstrably capable of dealing with. The response didn't even cause a recession!
For everyone who thinks CPI is an accurate measure of inflation, consider this chart: [0]
It shows real wages mostly flat or increasing since the 1980's. I've noticed that the same people claiming CPI is accurate also tend to complain about decreasing cost-adjusted standards of living for the median worker. Those opinions can't both be correct (hint: the second one is correct).
It has always seemed like a very laggy indicator to me. Eg, if inflation is brought under control, the YoY numbers will make it look like there is still inflation on-going for the next 12 months. To me, that seems almost dangerous, as it will provoke inflation countermeasures from the government, and inflation reactions from business & labor (price/wage increases) that will in turn lead to even more inflation..
3% YoY vs 4% last month and 9% last year are excellent, not pretty bad.
For comparison yoy inflation in 1983/1984 (massive win for the incumbent president) was >3% and >4% respectively with a significantly higher unemployment rate
Right after lockdown COVID restrictions got slightly lifted from the full-scale lockdown in a European country, the prices slightly dropped for some months, only to start raising again (and this month is all-time record for raises).
Here is what I don't understand. Interest rates keep going up so mortgages keep going up so rents keep going up (this is more pronounced in places that have shorter mortgage terms like Canada). Then we bemoan inflation in housing?
The general public bemoans inflation in everything all the time. I’ve been hearing about the overpriced real estate market and the upcoming bubble burst since 2013.
How would one game the CPI? A price index is just an average of the prices of a bunch of different goods. We have pretty hard data on the prices of goods. People likely think inflation is higher because they purchase more of a particular good that has significantly increased. Used cars, for example, accounted for almost a third of the inflation measure in 2021.
> How would one game the CPI? A price index is just an average of the prices of a bunch of different goods.
- They have changed what goods are thrown in the basket and in what proportion repeatedly.
- They have made adjustments, or when they haven't they arguably should, for variation in quality of goods since for example any TV you buy now is higher quality than anything available in 1990. You don't have the option of buying the previous quality anymore though.
- It's a bit murky how to account for substitutions over time such as people buying Impossible burgers instead of beef.
Many of the adjustments they consider are completely reasonable but involve subjective and game-able choices which makes the measure hard to trust at face value.
One more problem with CPI is that the way it works is they survey a bunch of median households about what they bought and how much of it they bought, and they don't adjust for how much money they saved. So in economic times when the median household was able to save some money, that resulted in a different CPI than when households spend their entire paychecks (where they have to adjust their spending preferences/how they allocate according to the maximum they could spend -- all their money).
For example, if grocery prices go up 30% on average, but only 10% on some staple like beans, I might buy more beans than I used to, putting more weight on the item whose price increased less, but not out of preference for that item. That increases the BLS weight for beans and decreases it for prices that are rising more quickly. Back in 1980 I might have bought different items and also saved some money each month. Now that saving portion of my "expenditures" is gone, but that also isn't accounted for by the CPI.
There's a reason that charts of real wages over time are largely flat or even increasing [0], despite that being inconsistent with the economic reality, and it's this BLS metric to blame.
No, I've described financial necessity, because I can no longer afford the item I prefer (which was recorded as my preference in a prior BLS survey, before the prices rose). But sure, if you think pedantry benefits the discussion...
Since the prices changed, you now prefer beans. The CPI isn't tracking the price of beans, it's tracking the overall price of food. Prices change all of the time, and consumer behavior changes because of it. If you choose to buy beans because it's more affordable, then the price of food should reflect what you're buying because that is a number you can back up. If you track what you want to buy then it's just make believe.
> The CPI isn't tracking the price of beans, it's tracking the overall price of food
First of all, this is incorrect. They do track per-item [0].
The point that I think you are missing is that, to me, beans are of a lower quality than what I used to purchase. However, hedonic adjustments don't go the other way to account for this.
You see, because I do not save any money, and I allocate the same proportion of my median salary to spend on food as I did before (because I have no additional money to put in), my contribution to inflation is based on the inflation of items that I can afford, not of what I used to be able to afford. That's just how they calculate it, resulting in a lagging indicator that misses some inflation altogether when combined with increasing wealth inequality. In an environment where the median person has no disposable income, a portion of inflation is always hidden by their changing consuming habits, where those changes are driven by the inflation itself and not by any change in quality or qualitative preference.
They track each item and weight them. The point isn't to track each item, the point is to track the general costs of consumer goods over time. Over time, what they track and how they weight them changes. So no, the point of the CPI isn't to track the price of a specific item.
I fully understand you feel like beans are lower quality, but that doesn't matter because it is not possible to track what you might have bought, so we track what you did buy. You may buy beans because bean companies go viral with their marketing, or because your local store is out of potatoes, or because you found a really good looking chili recipe you want to try. CPI doesn't try to explain why you bought beans, or didn't buy potatoes.
> So no, the point of the CPI isn't to track the price of a specific item.
Strawman. No one ever claimed that.
I'm not sure why you're continuing to argue here.
> but that doesn't matter because it is not possible to track what you might have bought
I can think of several ways of improving on the current system, two of which can be easily derived if you understand my previous post.
Spoiler: track the inflation of goods weighted by quantities purchased 1-2 years prior. And incorporate savings as a significant category such that the category CPI_savings = -(net_savings_this_month - net_savings_X_months_ago) / ((income_this_month + income_X_months_ago)/2). Still imperfect if most of the people answering the survey have no savings, but at least it would have captured the undocumented inflation from the 1980s-2010s that was hidden by decreasing savings.
I never claimed you can't improve CPI, or that it's even an accurate way to view changes in prices over time. My original comment was that when you choose to buy beans over another food, you are expressly showing you prefer to buy beans.
You answered your own question, one of the ways is to "adjust for consumer preferences" the goods baskets You can also change the weights for various localities or overstate how much better the new version of a product is and reduce its weight.
Fundamentally the BLS in the US has no incentive to accurately report inflation. They are a department of the executive with no real safeguards against political influence. Reducing the official CPI reduces the government's expenditure and understating inflation is a great way to do so without officially cutting any budget item.
Further, see my sister comment to yours, inflation is personal, a country-wide single-number inflation measure is broken by design.
It is certainly gamed, but maybe not in the way you mean it.
The fundamental issue is that every agent in the economy has their own price index, condensing this into a single number is impossible without losing almost all the information.
Essentially, inflation is a field like air pressure (Eric Weinstein put it this way). Even if the weights and items baskets in the various categories were chosen with the best intentions it would not match anybody's experience. It would be like saying the weather in the US tomorrow will be 1056.
On top of that there is almost certainly a lot of "adjusting" of the weights and item baskets, the organizations producing the statistics have no incentives not to.
The public is wrong about a lot of things, especially when some of the richest and most powerful people in the country have systematically deceived them for years.
The public thinks inflation is a crisis despite all evidence to the contrary because certain politicians and pundits keep shrieking about it.
Why do you think it's a gamed number? The official US inflation numbers correspond pretty well to outside efforts to measure them like the Billion Prices Project. Not perfectly with any one official price index but the US publishes a ton of them using different baskets of goods and different methodologies so that isn't surprising. But not systematically off in any particular direction either.
The CPI isn't a made up number. It's an average of prices of goods. The government doesn't manipulate prices of goods, at least not directly. Sure, the economy might be gamed by the government and large corporations in general, but the Consumer Price Index isn't (and can't really be) directly manipulated, without changing its definition (what is included in the index).
Most of government is comprised of bureaucrats who do their jobs through many administrations. This take shows a complete misunderstanding of government work.
None of these measures are relevant to 99% of people because labor share of productivity continues decreasing
Until labor share of growth is rebalanced [1] nothing will change for most people and the vast majority will continue to have no power to escape this feast-famine cycle.
[1] https://www.epi.org/productivity-pay-gap/