High inflation in the united states came in at 8.5 in the last 12 months at least that’s what we got in the latest cpi report.
If we dig into the actual data we can see that gasoline is up 44% year over year. Electricity is up more than 15 percent food at home is up over 13 percent transportation by 9.2 percent and shelter is up 5.7%.
Now that shelter number is incredibly important as charlie bolillo points out. It is the single biggest component of cpi makes up 33% of the index and he believes that it is still wildly understated only at 5.7 percent year-over-year. Over the past year, home prices have increased by 19.7% while rents have increased by 12.4%. In other words, the actual inflation rate is much higher than the commonly cited 8.5%.
We then can look at heather long pointing out some of the big declines months over a month we’re in gas prices and airfares both down more than 7 percent from the previous month. Grocery prices rent and the electricity you know the things that people consume every week continue to rise. Then we can go take a look at u.s wage growth which is failing to keep pace with rising prices for 16 consecutive months.
The main justification for the Fed’s need to keep raising rates is the decline in worker prosperity in the United States. The chart that started it all with zero hedges highlighted the fact that real weekly earnings have decreased for a record-breaking 16 consecutive months. In 16 of the past 18 months, high inflation-adjusted earnings have decreased for 89 percent of the time that Joe Biden has been president.
At the end of the day, inflation is here it’s continuing to be a problem, and the federal reserve for now more than eight months have been trying to create tighter financial conditions. The fed’s actions are not addressing the problem and ultimately we’ve entered a period of stagflation, where we have persistently high inflation and now we have two consecutive quarters of negative GDP growth.
If GDP is contracting and inflation is staying high the federal reserve is in a lose-lose situation. They want to get inflation down they’re going to have to create tighter and tighter financial conditions, which will only push us deeper and deeper into a recession.
I don’t envy the position that these central bankers have found themselves but at the end of the day, we all know the free market has the solution. The question is do we have the courage and the conviction to let the free market do its job and for humans to sit on their hands and prevent themselves from intervening in markets.