Nov. 10, 2022

It's Inflation Day

Today is Inflation Day, that day when the economy's inflation rate is published. Our scorekeeper, as it is every month, is the Bureau of Labor Statistics. A little-known division of the Department of Labor. The BLS is mandated to keep accurate and timely records of the nation's employment and labor sector. And all the data we've used in today's podcast comes from the Bureau.

The Bureau report Prices, the Consumer Price Index, or CPI, are the most closely watched of all inflation reports.

The CPI affects everyone in the nation. It measures the costs of necessities such as food, shelter, clothing, and energy. The Bureau calculates how much an average family needs to earn to enjoy a decent standard of living.

Americans have enjoyed a bountiful standard of living because of the forty-year convergence of high productivity combined with low, stable prices. Not since the 1980s have people been worried about rising prices. Inflation was not an issue. In fact, for most of that time, disinflation or lower costs was the top monetary condition. Low-cost imports, chiefly from China and Southeast Asia, combined with new distribution channels, such as big box stores and online shopping, created a bargain lover's paradise.

It was a time of rising wages and salaries and falling prices that created one of the most significant economic booms.

But as we all know, those times are over.

What was so remarkable was how quickly the good times ended. It was as if someone said the party was over, told the band to stop playing, and turned out the lights.

We'd never seen anything like it. When Paul Volcker was fighting Inflation in the early 1980s, Inflation had been building for years. Inflation began at least by the 1973 OPEC Oil Embargo and worsened steadily. A decade-long march from beginning to climax.

But not this time. This time, we had instant Inflation. No inflation before Biden, In the decade before Joe Biden was elected President, only one year did Inflation exceed 2%. Instant Inflation once he became President.

In 2021 things began to change. Inflation took off, as we have never seen before. By March 2021, Inflation hit 2.6%. In April, Inflation was at 4%. The highest rate of Inflation in years. 5% inflation came just two months later in June, and 6% by November 2021. And 8% inflation in March of this year, where we've been ever since.

In an economy as massive and diverse as ours, it can be challenging to determine causes and effects. But I'm a numbers guy, and I go where the numbers lead. And in this case, it is apparent.

For the first year of massive Inflation under President Biden, the number one contributor to that was the cost of gasoline. Well, the cost of all oil and gas products was driving Inflation. But particularly gasoline, as noted by the Bureau of Labor Statistics.

Food has only increased to the number one inflation contributor in the last couple of months. But gas is still number two and threatening to go much higher this winter, which would contribute to even more Inflation.

Once we determine what's driving Inflation: the price of gasoline. It becomes relatively easy to decide on the why. Did something change in the economy that contributed to these escalating prices? The answer is yes. Specific Biden policies radically altered the nation's energy policy and increased costs.

On January 27, 2021, just a week after the Inauguration, President Biden signed two executive orders. Called the Climate Day Orders. The orders were sweeping in their impact, encompassing several of Biden's pet objectives. They committed the nation to join the Paris accords on Climate Change, closed down the Keystone XL Pipeline, and ordered a halt to all new oil and gas leases on Federal Lands, the most significant available land for oil exploration.

As you can imagine, the price of oil started to climb as companies realized this was the end of the road for new petroleum sources.
Because President Biden has been unswerving in this commitment to eliminate fossil fuels, he casually mentioned that he intended to close down all coal mines in the country last week.

Perhaps the most dramatic gesture in Biden's effort to do away with carbon-based fuels was his executive order on March 8 of this year to halt all imports of Russian oil, gas, and coal. The E.O. directly responded to Russia's incursion into Ukraine, but there can be no doubt that it also fulfilled Biden's green objectives.

The E. O. removed about 10% of America's oil and gas supply and caused another inflation boost.

The United States begins this winter with an uncertain energy position for the first time in memory. There is great concern that there won't be enough diesel to run the trucks and trains that supply most of the country's goods and products. Many are concerned that there won't be enough natural gas or heating oil to warm their homes here in the Northeast. And out West, many feel they can no longer rely on electricity to supply their needs.

We are facing a universal shortage of energy. Now, the way that commercial markets solve any deficit is to raise the price. That's why the cost of all energy products continue to rise.

 

And those higher prices are what you and I call, Inflation.

 

 

Econ Briefs

It's just been reported that critical reading on October's Consumer Price Index. The CPI came in at only 7.7%, down half a percentage point from the month before. That's far below even the most optimistic Wall Street Estimate. And is bound to change many investors' perspectives. It indicates just how weak this economy is. And a clear indication that there is tremendous "demand destruction" occurring.

Will that deter the Federal Reserve? Probably not. The Fed will meet on December 14 to determine the next move in interest rates. They will likely consider today's CPI Reading a green light to raise rates. Based on this CPI number, look for the next interest rate hike of 75 basis points.

Once again, the Consumer Price Index for October came in at a mere 7.7%, much less than anyone anticipated.