Miscellaneous Economics News

New Inflation Measure

Many economists believe that the current measure of inflation, Consumer Price Index-All Urban Consumers, overstates the true nature of price increase, and as part of reining in balooning entitlement benefits, they are considering alternative measures. One of the most popular candidates is Chained Consumer Price Index, which takes into account the subsequent behavior of consumers in the aftermath of price increase. For example, if prices for beef rise, consumers will adjust to lower price alternative such as pork. The Chained CPI takes into account this shift in consumption behavior. As a result, Chained CPI estimates the underlying inflation at a lower level than CPI-AUC. According to Congressional Budget Office, switching to Chained CPI will save the country $112 billion in Social Security Benefits over the next 10 years and $24 billion in Federal and civilian and military pensions.

Divergence between Live-Beef and Retail Prices of Beef

The Dallas Morning News published on December 29, 2021 in one of its editorial articles that prices of beef, turkey and chicken were rising at an alarming rate and accounted for the largest contributor to the rise in food prices, according to a note released December 10, 2021 from Biden administration's economics team. Biden administration raised a red-flag over a possible collusion of the nation's four large meat processors and packers: JBS, Tyson, Marfrig and Seaboard. However, America's farmers and ranchers are barely breaking even. In May 2020, Texas Agricultural Commissioner Sid Miller raised a similar red flag in a letter to Attorney-General William Barr, pointing out the anomaly in retail beef price and live-beef price. This increase in prices is not due to supply chain woes. In stead, this results from a likely collusion and price manipulation by four large meat packers.  

Biden Administration Stepping up Efforts to Rein in Meat Prices

President Joe Biden on January 3, 2022 held a virtual conference call with the nation's independent ranchers and farmers as part of the administration's evolving strategy to checkmate the meat price inflation that had contributed to 6.8% year-over-year inflation in the Consumer Price Index in November 2021, a 39-year high. Meat prices rose 16%, with beef prices taking a steeper climb, 20.9%. President Biden called the "Capitalism without competition" as "exploitation". President Biden wants to build on his administration's July 2021 executive order, instructing the Agriculture Department to look into whether there was any possible violation to the 1921 Packers and Stockyards Act, designed to protect the consumer interests and ensure fair pricing. The White House issued a fact sheet showing that the Big Four Processors controlled 85% of the beef market, 54% of the poultry market and 70% of the pork market. Biden administration also announced that it would distribute $1 billion from the Coronavirus aid package to support and expand independent meat packers and processors. 

Inflation and Supply Chain Issues

Fastest Pace of Year-over-Year Inflation since 1982; FMI Blames Supply Chain Problems

January 2022 marked the fastest pace of annual inflation since 1982 as the Department of Labor reported on February 10, 2022 that the Consumer Price Index, or CPI,  grew 7.5% compared to January 2021. Even the core-CPI grew at a pace of 6%. The rising inflation may pose a daunting challenge to Democrats in the upcoming 2022 midterm election and undermine President Joe Biden's domestic policy agenda. Part of the inflation is due to the nation's continuing strain on the supply chain ecosystem, making many store shelves empty in various parts of the country. 

FMI, the food industry trade group, has recently given an insightful analysis into how supply chain woes are contributing to price rise for daily staples such as peanut butter and jelly sandwich: (1) Citric Acid, a preservative in the jelly, is in short supply due to global disruption; (2) peanuts are being transported by road and rail which are being affected by labor shortages; (3) sugar prices are at a 10-year high; (4) whole wheat breads are transported in cardboard boxes, which are in short supply; (5) weather-related crop losses in major wheat-producing nations as well as less production in the U.S. is straining the supply chain for wheat products, including breads; (6) vegetable oil, a key ingredient of peanut butter, are in short supply.

Largest Year-over-Year Inflation since 1982

The Consumer Price Index spiked by 7.9% in February 2022 compared to February 2021, largest spike since 1982 and largely fueled by food, housing and fuel.

8.6% Rise in Annual Inflation Is a Four-decade High

The Consumer Price Index grew 8.6% in May 2022 compared to May 2021, registering the briskest pace of inflation since 1981, according to the U.S. Labor Department's release of the report on June 10, 2022. 

U.S. Inflation Hits Record High since November 1981

Consumer Price Index rose a hopping 9.1% in June 2022 compared to a year ago, highest since inflation rose more than 9% in November 1981. The inflation in June 2022 was fueled by price surges in gas pumps, groceries and rent. The 12% hike in grocery costs is the sharpest jump since 1979. The inflation figures and related political narrative pose serious challenge to Democratic Party's prospect in the 2022 midterm poll.

U.S. Economy Shrinks for Two Successive Quarters

Although many economists are reluctant to drop the "R" word, a recession may be what many commoners may construe of two successive quarters of economic contraction that the U.S. has experienced in the first two quarters of 2022. According to the Department of Commerce release on July 28, 2022, the economy has shrunk by 0.9% in the second quarter in addition to 1.6% contraction in the first quarter. In the second quarter, consumer spending, business investment and inventories all have dropped, creating an air of uncertainty in the economic outlook of the nation. 

Another Gut Punch for Americans on Inflation Front

There was much of an "irrational exuberance" after inflation snapped back temporarily in July 2022, but stocks broadly retreated after the Department of Labor on September 13, 2022 reported a spike in inflation picture, leading to a palpable fear in the marketplace that a recession could be looming large. For August 2022, the annual inflation jumped 8.3%. 

Latinos' Economic Impact Quantified

According to a research jointly commissioned by the Latino Donor Collaborative and Wells Fargo and issued on October 5, 2022, Latinos in the U.S. will rank as the fifth-largest economy of the world, eclipsing the GDPs of France and India, if they constitute as an independent nation. Latino community's impact on the U.S. economy in 2020 was a whopping 13%, or $2.8 trillion. 

Price Increase Slowing, Brings Some Relief

The U.S. Labor Department's November 10, 2022, report on price stability was a mixed bag. In October 2022, prices rose 7.7% compared to a year ago, a drop from September 2022 rise of 8.2%. Taking out the volatile food and energy, the core price index rose 6.3% in October 2022 compared to a year ago. The CPI growth in October 2022 was 0.4% compared to the preceding month and the core-CPI grew 0.3% compared to September 2022. 

Contributing to the deceleration of the CPI growth is the drop in used car prices, fourth such consecutive drop, as well as prices in clothing and healthcare. Food prices rose less steeply. However, energy prices rebounded in October 2022 after dropping in September and August of 2022. 

Inflation: An International Story in 2022

The Dallas Morning News explained in a front-page article on January 2, 2023 the inflation's trajectory in 2022 that had coursed through the U.S., U.K., Eurozone and the rest of the world. The Ukraine conflict that Russia had precipitated with February 24, 2022, invasion had only made the inflation picture more complicated, with disproportionate impact on energy and food sectors. According to the International Monetary Fund, the global inflation will hit 8.8% in 2023, highest since 1996. In the U.S., the November 2022 CPI rose 7.1% compared to a year ago, significantly better than the June 2022 inflation of 9.1%. In the 19-member Eurozone, the inflation in November 2022 stood at 10% compared to 10.6% in October 2022. In the U.K., the November 2022 inflation figure is a painful 10.7% compared to 11.1% in October 2022. 

U.S. Inflation Close to "Goldilocks" Region

The June 2023 inflation number can't be any better for the economists who are clamoring for the Federal Reserve to forego any rate increase this year. On July 12, 2023, the Labor Department issued its June 2023 inflation report. The inflation rose at 3% annual rate, significantly lower than last summer's painful numbers and slightly higher than the Federal Reserve's 2% target. Key drivers for the June 2023 inflation are the rising rent and auto insurance cost. With moderating inflation, it's to be seen now what Federal Reserve policymakers do in their September 2023 Open Market Committee meeting. 

Economic Growth Looks Healthy Despite Fed's Fight on Inflation

The U.S. Commerce Department's latest GDP figure assuages any concern over a recession, even a "mild recession". According to the July 27, 2023, report, the U.S. economy grew 2.4% in the second quarter of 2023 (April-June 2023), fueled mostly by business investment. The Infrastructure Investment and Jobs Act has a key role in fueling the growth in the second quarter of 2023 despite 11 increases in the Federal Funds Rate by the Federal Reserve since March 2022. The Infrastructure Investment and Jobs Act allocated $299 billion for infrastructure-related projects. According to the administration figures, private companies chimed in with an additional $503 billion in investment announcement. The combined effect is translating into higher economic yield and a potentially big political win for the Biden administration. 

Inflation Peaks up, but not Significantly

The downward trend of the year-over-year price increase curve took a reversal in July 2023 as the inflation hit 3.2% compared to 3.0% in June 2022. The Bureau of Labor Statistics on August 10, 2023 released the inflation figures that reflected the vindication of Feds' push to hike a key interest rate 11 times to calm a stubborn inflation that had risen as high as 9.1% in June 2022 on annualized basis. 

Margin of Error for People Born Poor Very Low, Research Shows

A venerable research published by The Dallas Morning News on December 31, 2023 says what we all along know: people born poor are disadvantaged to begin with to move high on the economic ladder and if they encounter any adverse event such as a car repair, missed deadline, a brush with law or even bad luck, that can spiral them to painful vortex of failure from which they may not gain escape velocity again.

According to Race and Economic Opportunity in the United States: An Intergenerational Perspective, part of the groundbreaking Opportunity Insights Project based at Harvard, only 2.5% African-American children born in the lowest quintile of economic stratum are likely to move up to the highest quintile of economic stratum and 75.4% are likely to stay in the same quintile or move up a notch above. For White children, the outcome is not a whole lot better: the respective figures are 10.6% and 53.4%, respectively. 

S&P 500 Hits Record High

On January 19, 2024, S&P 500 Index jumped about 59 points to reach a record high of 4839.51. The last time the benchmark index hit a record high was in January 2022, some 512 trading days ago, marking the sixth-longest interval between the record highs since 1928. There is no one unique contributor for this bull run, but plethora of reasons have contributed to this rational, or irrational, exuberance among traders on the Main Street, including a perception that a rate cut may be around the corner and a strong bullishness on AI-fueled products, solutions and services that may pad up revenues and profits of an array of corporations, irrespective whether they are small or big or in between. 

Key Index that Feds Follows at Its Softest Level 

Federal Reserves policymakers follow, analyze, assess and interpret a key economic gauge that reflects number of vacancies to number of unemployed ratio. On June 4, 2024, Bloomberg News reported that there were 8.06 million job vacancies in April 2024, revised downward from 8.36 million reported a month ago, according to the Bureau of Labor Statistics Job Openings and Labor Turnover Survey, or JOLTS. The ratio of job vacancies per unemployed person stood at 1.2, lowest since 2021. 

Wall Street's Worst Day in Three Years Likely to the Overreaction 

The global stocks were routed on August 5, 2024 as a softer than expected U.S. employment report of adding only 114,000 jobs in July 2024 fueled the speculation of an upcoming market correction. Moreover, stocks, especially tech stocks, are overvalued, becoming a recipe for some profit-taking by traders. Also, last week's Bank of Japan's decision to raise a key interest rate from the negative territory to 0.25% also led to the frenzy of selling. 

Inflation Index Lowest in more than Three Years 

A key inflation gauge, year-over-year increase in Consumer Price Index, for the month of July 2024 is the lowest since March 2021. The year-over-year increase is 2.9% for July 2024 [compared to July 2023], according to the Bureau of Labor Statistics which has published the monthly report on August 14, 2024.