And just like that, we’re back at the Volcker era — except there’s no Volcker in sight:
Colby Smith for the Financial Times:
US consumer prices increased at the fastest pace in nearly 40 years in November, piling more political pressure on the Biden administration as it seeks support for a massive spending plan.
The consumer price index, published by the Bureau of Labor Statistics on Friday, rose 6.8 per cent last month from a year ago — the fastest annual pace since 1982 and a significant pick-up from the 6.2 per cent rate in October…
Stripping out volatile items such as food and energy, core CPI climbed 0.5 per cent from October. That is roughly in line with the previous period, and pushed up the annual pace to 4.9 per cent. Last month, it registered 4.6 per cent.
Not only is there no Volcker in sight, but the current administration’s policy seems focused on minimizing the extent of the current problem rather than acknowledging it, not something that was the case in 1982. Going even further back, to 1974, President Ford might have invited ridicule with his ‘Whip Inflation Now” campaign, but it beats Biden’s “Deny Inflation Now.”
The FT’s Smith:
The Biden administration assumed a defensive stance ahead of Friday’s report, and the president issued a rare statement that sought to play down the relevancy of the incoming data.
“The information being released tomorrow on energy in November does not reflect today’s reality, and it does not reflect the expected price decreases in the weeks and months ahead, such as in the auto market,” Biden said on Thursday.
Gasoline prices have moderated in recent weeks, as have natural gas prices, though a senior administration official said this “relief” was not captured in the November report. Price pressures are set to abate further in 2022, the person added, noting that such a forecast aligns with most official and private sector projections.
Well, we’ll have to see what happens to energy prices next year (note that they are not included in core CPI), but I would like to see more discussion by the administration on what the effect of its climate policies will be on the longer-term cost of energy. There will be nothing transitory about greenflation.
Via the Wall Street Journal, here’s another example of how that might bite:
It could be a rough winter for energy prices across the U.S., and the Democratic spending plan will make it worse. The House passed what it calls a “fee” on methane that amounts to a stealth tax on natural gas and everyone who uses it.
The bill slaps an escalating tax on methane emissions by oil and gas producers that will reach $1,500 per ton by 2025. The fee is meant to be President Biden’s contribution to the recent Glasgow vow to reduce global methane emissions 30% by 2030. The tax is estimated to raise $8 billion over 10 years.
Producers will naturally pass the cost of the tax along to customers. Some 180 million Americans use natural gas to heat homes and run appliances, while some 5.5 million businesses use it to run their workplaces and manufacturing facilities.
Even without this new tax, the Energy Information Administration (EIA) is warning that about half of U.S. households that primarily heat with natural gas will pay 30% more this winter than they did a year ago—50% more if this winter is cold. The American Gas Association estimates the methane tax could add another 17% to an average customer’s bill.
In the meantime, if I had to focus on one element in today’s numbers it would be on “shelter,” which reflects rental costs and (indirectly) housing prices.
Smith (my emphasis added):
Shelter-related costs, which represent about a third of the CPI index, rose 0.5 per cent over the month, with owners’ equivalent rent — which measures what homeowners believe their properties would rent for — up 0.4 per cent, for an annual increase of 3.5 per cent.
Under current circumstances, which include ultra-low interest rates, inflation fears, and a chronic shortage of housing, that number, I suspect, is only likely to increase. And, yes, it represents a third of the index.
Some of those trying to spin the data are arguing that, after taking international comparisons into account, the numbers are not that bad, but look carefully at the charts supplied and the case is rather less convincing than they might think. That said, I for one am delighted that we are doing better than, among others, Venezuela, Argentina, and Turkey. U.S.A.! U.S.A.!
On the other hand, check out the chart accompanying this tweet from economist Jason Furman (a former chairman of Obama’s CEA):
I’ve seen the argument many, many, many times that inflation is up everywhere so there is nothing US-policy specific to what we’re seeing. Look at this comparison of US and euro area core inflation (trying to use as comparable measures as possible) and tell me if you agree.
For a look at economists’ consensus expectations for 2022, go to this FT article. The U.S. comes out at around 3.5 to 3.7 percent. That may be optimistic.