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Embrace the good news but inflation’s decline is temporary

Apr 17, 2023

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On April 12, the Bureau of Labor Statistics said inflation rose at its slowest rate in two years. Excluding volatile food and energy prices, core inflation rose 5.6% on an annual basis, as expected. Grocery prices declined by 0.3% with eggs, which have skyrocketed of late, falling nearly 11% for the month. Energy prices declined 6.4% annually.

Straight Arrow News contributor Larry Lindsey argues that despite all the good news of late, inflation will head back up and continue to be volatile throughout the year. 

Well, we’ve been getting some good inflation numbers lately. The CPI — Consumer Price Index — came out. The headline was only 0.1% for the month. If that continued we’d have inflation well under 2% for the year. But if you took out food and energy, the number was 0.4%, which means we’re really having inflation closer to 5%.

Food prices in the supermarkets fell 0.3%. Now, you may not have noticed, but that’s the number the survey people picked up. More important, the price of energy, not just gasoline, but also natural gas, electricity, fell 4.6% in a single month. Well, that was also repeated in the Producer Price Index, which declined last month. Good news, but the entire thing was due to a 6.5% drop in the price of energy. All other goods were up 0.3%, food was up 0.6%. So this should tell us what’s really going on is that, yes, we had good news on inflation but it was all due to a decline in energy prices.

Now, the problem is is that was for March and we know what happened to energy prices in March. They started the month at $80, they fell to $67 and went back up to $75. The average price for a barrel of oil, West Texas Intermediate, last month was $73.20. Now, here’s the problem. It’s already $82.25 here in April. Now, even if we had no more inflation in terms of oil, that would add 0.6% to the inflation rate so we wouldn’t have a 0.1% headline inflation rate, we’d have a 0.7% headline inflation rate. So you have to look closely inside the report to understand what’s going on.

Generally, the Fed tends to ignore food and energy prices because they’re so volatile. And this is a sign of that volatility.

Well, we’ve been getting some good inflation numbers lately. The CPI Consumer Price Index came out, the headline was only 0.1 for the month. If that continued we’d have inflation well under 2% for the year. But if you took out food and energy, the number was 0.4, which means we’re really having inflation closer to five, we’re set.

Food prices in the supermarket’s fell three tenths of 1%. Now, you may not have noticed, but that’s the number the survey people picked up. More important, the price of energy, not just gasoline, but also natural gas electricity, fell 4.6% as single month. Well, that was also repeated in the Producer Price Index, which declined last month. Good news. But the entire thing was due to a six and a half percent drop in the price of energy. All other goods were up three tenths of a percent. Food was up six tenths of a percent. So this should tell us what’s really going on is that yes, we had good news on inflation. But it was all due to a decline in energy prices. Now, the problem is, is that that was for March. And we know what happened to energy prices in March, they started the month at $80, it fell to 67 and went back up to 75. The average price for a barrel of oil, West Texas Intermediate last month was $73.20. Now, here’s the problem. It’s already at 225 here in April. Now, even if we had no more inflation in terms of oil, that would add six tenths of a percent to the inflation rate. So we wouldn’t have a 0.1 headline inflation rate, we’d have a 0.7% headline inflation rate. So you have to look closely inside the report to understand what’s going on. Generally, the Fed tends to ignore food and energy prices because they’re so volatile. And this is a sign of that volatility. There were a few other interesting moves, one of them was in rents. Now rents are going to be trending down. The survey method tends to have the number of reported like behind rents both on the way up and on the way down and they went up so much last year, they’re only starting to come down now. But probably the good news is going to be short lived. Last month apartment list, which combined piles and index of rent prices saw an increase of half a percent. And New York City rental prices just reported to have hit a new record high, reversing what had been a very temporary decline.

Used car prices,

suggested a another problem. Now they declined last month by nine tenths of a percent that follow the 2.9% decline in February and a 1.9% decline in January.

But an organization called Mannheim, which actually looks at prices at the wholesale level. So soap showed that used car prices have gone up over 9% since last November. So those higher wholesale prices are ultimately going to be passed on to the price of used cars. One other kind of quirky thing was although food at the grocery store supposedly declined three tenths of a percent. food eating out went up went up six tenths of a percent. So it has in recent months. Now what that shows is labor costs are still very high and rising. And so whether you go to McDonald’s or someplace fancy, the people who are serving you are getting paid a lot more, and you’re going to be paying for it when you submit your bill at the end.

Well, what does all that mean? Let’s celebrate the good news on inflation. Keep in mind it’s temporary. Inflation is going to bounce back for most of this year. It’s going to run three to four tenths of a percent month. Probably

Little less than 4% for the year four percents better but it isn’t anywhere close to where the Fed wants to get to or where we were from most of the last 15 years which is around 2% This is Larry Lindsey frustrate our news

 

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