Don't Be Fooled By The Numbers!

Last week in our full article ‘Massive Increase In The Cost of Living!’ we made our frustration known. We believe that the numbers we are seeing with regard to jobs, inflation, and the economy, in general, do not coincide with what we are seeing in our daily lives. In fact, we’re of the belief that this might be deliberate in order to make us believe that things are not as bad as they truly are. In that newsletter, we stated that:

Quite frankly, most of us do not care what official statistics and numbers show, what really matters to us is how we feel when we go to the grocery store, stop at the gas station, pay for clothing, and pay for housing expenses. Therefore, all this talk about strong labor markets, people having all the jobs they need, and a low inflation rate to many of us, “is for the birds“. We feel what’s happening in real life in real-time, Not what some number or statistic states.

We also went on to say that “we just don’t give a damn about all this talking and rhetoric in the mainstream. What really matters to us is what we’re feeling in our pocketbooks and purses”. It is our belief that these statements are true for most people as they are for us. 

So, the numbers that are being presented to us are telling us that things are not as bad as we think, and what we feel in the real world may not be reality. Since we are constantly being beaten over the head with these economic numbers that tell us that things are getting better, let’s take a look at the numbers, really take a look at the numbers. This week let us start with the inflation numbers. 

In this week's full article, we take a deeper look at the inflation numbers. It is clear that inflation decreased its rate of increase, but when we take a deeper look at the numbers themselves, the things that matter to us most, such as food, have actually been on the rise. However, one would not be able to see this by just looking at the broad inflation numbers, one would need to go deeper into the components that make up the inflation numbers that are presented. 

Authors note: It is our personal belief that the inflation numbers themselves do not measure inflation as accurately as it is felt in the real world, and that this is deliberate. For a more accurate read on inflation as measured decades ago before changes were made to the calculation please see John Williams’s Shadow Stat

For related readings, see also: ‘Aviation: Jobs Jobs Jobs!’, ‘Aviation: Making Ends Meet’, ‘Why is it More Expensive to Give Thanks?’, ‘Lowering Real Wages | Increasing Debt’, ‘Labor: Should I Participate?’, ‘Jobs "Boom" : Is it really?’, ‘Aviation: Can We Be Frank About The Jobs Market?’, ‘Aviation: Are Our Retirements At Risk?’, ‘2023: The Year of Job Losses?’, ‘Inflation Slows, Great News for Income Earners? Well…’, and ‘Massive Increase In The Cost of Living!’

The federal government’s Bureau of Labor Statistics (BLS) released new price inflation data Wednesday, and according to the report, price inflation during April decelerated slightly, coming in at the lowest year-over-year increase in twenty-four months. According to the BLS, Consumer Price Index (CPI) inflation rose 4.9 percent year over year in April before seasonal adjustment. That’s down from March’s year-over-year increase of 5.0 percent, and April is the twenty-sixth month in a row with inflation above the Fed’s arbitrary 2 percent inflation target. 

Meanwhile, month-over-month inflation rose 0.4 percent (seasonally adjusted) from March to April. That's up from March's month-over-month gain of 0.1 percent.

April’s year-over-year growth rate is down from June’s high of 9.1 percent, which was the highest price inflation rate since 1981. The BLS's CPI inflation rate has now slowed from June's high for ten months in a row.

Growth in CPI inflation has indeed slowed, and this reflects slowdowns in energy, gasoline, used cars and trucks. Food prices continued to rise at an alarming rate, but even there, price increases moderated somewhat with "food at home" slowing from a year-over-year increase of 8.4 percent in March to 7.7 percent in April. Prices in energy overall fell 5.1 percent, year over year, with gasoline prices dropping 12.2 percent over the same period. 

Shelter prices have seen some of the most robust growth in recent years, and increases have remained among the highest we’ve seen since the 1980s. As of April, however, year-over-year growth in shelter prices slightlyslowed as shelter prices increased 8.1 percent in April. That's down from March's year-over-year increase of 8.17 percent. 

Meanwhile, April was yet another month of declining real wages, and was the twenty-fifth month in a row during which growth in average hourly earnings failed to keep up with CPI growth. According to new BLS employment data released earlier this month, nominal wages grew with hourly earnings increasing 4.4 percent year over year in April. But with price inflation at 4.9 percent, real wages fell.

Moreover, once we look beyond food and energy—the two most volatile components of the CPI—price inflation has barely slowed at all. This so-called "core inflation" rate of increase fell to 5.5 percent in April, but that's not down much from March's growth rate of 5.6 percent, or from the 40-year high of 6.6 percent reached last September. Month-to-month increases also remain elevated at 5.5 percent with no sign of core-inflation growth turning negative.

The market's reaction to this very slight deceleration in price inflation has been to interpret it as a victory over price inflation and to assume that the Fed's FOMC will now "pause" on interest rate hikes:

"We expect the FOMC to maintain the federal funds rate at its current level for the foreseeable future and for inflation to slow further in the months ahead as supply pressures continue to ease and demand growth weakens," Wells Fargo's team of economists wrote on Wednesday.

At last week's FOMC press conference, Jerome Powell hinted that the committee has taken a dovish turn, announcing that additional rate hikes can no longer be assumed. For what it's worth however, at least some members of the Committee are maintaining the appearance of continued relative hawkishness. This week, New York Fed President John Williams insisted that "We haven't said we are done raising rates" and "if additional policy firming is appropriate, we'll do that. ...I do not see in my baseline forecast any reason to cut interest rates this year."

It's unclear that the Fed has much appetite for additional rate hikes, however. With the FOMC's latest 25-basis-point hike to 5.25 percent last week, the target federal funds rate is now at the highest it's been at any time since 2001. The target rate was also at 5.25 percent on the eve of 2008 financial crisis. 

Two ongoing developments also point toward immense downward political pressure on the Fed's target rate. First, there is the fragility of the banking system. In spite of Powell's claims last week that the banking system is "sound and resilient", 2023 has now seen three major bank failures, and banks are borrowing emergency funds from the Fed at breakneck speed. There is growing evidence that banks will face enormous headwinds unless the Fed forces interest rates back down. On top of this, debt payments on US debt continue to soar as interest in US government debt slowly ratchets up. 

If the Fed caves to these dual pressures to cut the target federal funds rate again, this will revive growth in price inflation and further prolong any efforts to keep inflation slowing from its recent 40-year highs and to fall convincingly back toward the Fed's two-percent target. 

For now, inflation fears have been sufficiently high so as to impel the Fed to allow interest rates to rise significantly since mid-2022. This, however, must necessarily come with an economic slowdown and likely recession. As Ludwig von Mises has explained: 

It is evident that every expansion of credit must bring about the boom[.] ... The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market. 

An important takeaway here is that when recessions follow monetary tightening, the root cause is not the tightening but the initial "expansion of credit." Wall Street gets it wrong when it claims that the Fed is causing a recession by tightening "too much." Rather, the recession was caused by the ongoing infusions of easy money itself, not by the end of easy money.  Or, more broadly, recessions are caused by the very policies that Wall Street repeatedly begs for in order to prop up asset prices and keep zombie banks afloat. 

The choice forced up on us now by this partnership between the Fed and Wall Street is between recession and mounting price inflation. For ordinary people, the unfortunate best option is recession if we seek an end years of falling real wages and financial repression. The only other choice is continued increases in the cost of living, and possibly even stagflation.

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Author: 

Ryan McMaken (@ryanmcmaken) is executive editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first. Ryan has a bachelor's degree in economics and a master's degree in public policy and international relations from the University of Colorado. He was a housing economist for the State of Colorado. He is the author of Breaking Away: The Case of Secession, Radical Decentralization, and Smaller Polities and Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

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This article was published in The Mises Wire on May 12, 2023, with the title “Price Inflation Growth Slowed Slightly in April. Now Wall Street Will Demand More Easy Money". The views expressed are the author’s, and do not constitute an endorsement by or necessarily represent the views of On Aviation? or its affiliates.

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