The news that the headline rate of inflation (CPI) had eased slightly (to 8.3 percent) was, of course, better than news that it had increased, but, like one of those days when the Entente reported having seized an extra hundred feet of mud on the Western Front in 1916, it was no real cause for celebration.
As AP’s Christopher Rugaber noted:
Wednesday’s report contained some cautionary signs that inflation may be becoming more entrenched. Excluding the volatile food and energy categories, so-called core prices jumped twice as much from March to April as they did the previous month. The increases were fueled by spiking prices for airline tickets, hotel rooms and new cars. Apartment rental costs also kept rising.
I can see how the surge in the cost of airline tickets might ease after a while but, given how rising home prices take a while to percolate through to “shelter” costs for the purposes of the CPI, that’s one area (I reckon) that will not be showing slower increases any time soon.
Rugaber:
In April, a fallback in gas prices helped slow overall inflation. Nationally, average prices for a gallon of gas fell to as low as $4.10 in April, according to AAA, after having spiked to $4.32 in March. But since then, gas prices have surged to a record $4.40 a gallon.
Grocery prices, too, are still soaring, in part because Russia’s invasion of Ukraine has heightened the cost of wheat and other grains. Food prices rose 1% from March to April and nearly 11% from a year ago. That year-over-year increase is the biggest since 1980.
I’d be surprised if gas prices will, normal fluctuations aside, start trending down any time soon, and with no end in sight to the fighting in Ukraine (which affects both the growing and transportation of grain), the war’s contribution to higher food prices is unlikely to ease up (I wrote about this here and here, and here’s more on the topic from Jim Geraghty). It will, of course, be made worse by soaring fertilizer prices (Russia and Belarus are major exporters in that sector), prices, incidentally, that were rising well before the war, as were those of wheat.
Predictably, Elizabeth Warren was quick to react with a typically carefully considered analysis of what was going on:
The prices Americans are paying for groceries and other essentials are at all-time highs. One of the reasons?
Giant corporations are price gouging & reaping record profits. We need to put a stop to corporate gouging that drives up prices for families.
This is, of course, nuts, but, it’s not bad politics, and so we can expect more of the same from Warren, the FTC, the White House and all the usual hucksters. In one poll, quoted by the New York Times today, 40 percent of respondents put at least some of the blame for inflation on “corporations.” If the massive increase in the money supply was even listed as a possible contributor (I don’t think it was), it was clearly not considered relevant by many. That says something.
President Biden reacted to the news with the comment that “bringing [inflation] down” was his “top priority.” While, to be fair, there is no one single solution to cutting inflation back, it’s hard to say how this goal will be reconcilable with many of his administration’s other priorities. His environmental policies will increase, nor decrease, energy costs, probably for years. Meanwhile his oppressive regulatory agenda and (proposed) tax hikes seem purpose-built to discourage corporations from filling in the gap between supply and demand that underpins so much of our current inflationary surge.
Paradoxically, the market turbulence that we are seeing may play its part in restraining inflation. Many investors will be feeling far poorer than they were just a month or so ago, and that, I suspect, will hit their willingness to spend, although that won’t help the mood of the electorate in November.
So, what now? Probably nothing good. I’ll just quote again from an interview that Jim Grant (of Grant’s Interest Rate Observer) gave Richard Hurowitz in early April:
I think it’s the confluence of things, including record-smashing fiscal deficits, record-smashing growth in the Fed’s balance sheet, near-record growth in money supply as broadly defined, and the constraints on supply attendant on COVID at first and now the disruptions that are part and parcel of the war in Ukraine. If I had no shame about using clichés, I would use the phrase “perfect storm.” There has been a confluence of events that at once suppressed supply of the margin and stimulated demand at the margin. All this at a time when governments are running immense deficits, and central banks are printing extraordinary amounts of money. So you kind of wonder, what did they expect to happen?