Previously published on October 13, 2022 in
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By Milton Ezrati, Chief Economist at Vested

For a couple of months this past summer, inflation news offered some willing souls some reason to hope that for a quick dissipation of price pressures. July and August showed remarkably slow rates of consumer price inflation. Measures over the prior 12 months came off the frightening highs of over 9% recorded last June. Such hopes were always false. Any considered reading of inflation news warned, as readers of this column should well know, how much powerful inflationary pressure remained. The Labor Department’s recent consumer price index (CPI) release for September should have confirmed that warning and extinguished any false hopes of inflation relief. It is now clear, even on the surface, that inflation will not go away any time soon.

The White House was the most prominent purveyor of inflation hope in July and August. In a widely-quoted interview earlier this month, President Joe Biden emphasized how little ground inflation had gained in August, saying that it had only advanced “an inch.” Technically, he was correct (although inflation is not measured in feet and inches.) In July the overall, what is called the “headline” CPI measure showed no advance, and in August it showed a gain of only 0.1%.

But as explained here and here, this seeming relief was due entirely to temporary adjustments in energy prices from their earlier and shocking upward spike. The retail price of gasoline, for instance, fell 7.7% in July alone and then 10.6% in August. For the two months, these moves kept the general monthly inflation rate 0.7 percentage points lower than it otherwise would have been. Aside from this good, if not especially durable news on the energy front, inflation in the rest of the CPI continued to roar. Food prices rose at close to a 12% annual rate during that time, and the price of housing rose at a 7.4% annual rate. The so-called “core” inflation rate – all items except food and energy – rose at a 5.5% annual rate, moderate by some standards, but still a burden on consumers trying to maintain a standard of living.

The same pattern repeated in September, but because the relief in energy prices was much more muted than in July or August the more general inflationary problem showed through more clearly. According to the Department of Labor, the cost of all energy products fell in September some 4.9%, and the retail cost of gasoline fell 2.1%. That moderated the so-called headline rate of consumer price inflation but no longer enough to erase concerns. September’s rise in the overall CPI came in at about 0.4% or close to a 5% annual rate. Food prices continued their relentless and steep climb, rising at a 10% rate in September alone. The price of shelter rose 9% for the month alone. More telling – and more troubling – the core inflation rate rose at almost a 7.5% annual rate in September, a marked acceleration from the 6.5% averaged during the prior 12 months.

More worrisome still is the likely path of energy prices in coming months. Just in the last few weeks, crude oil prices have risen some 16%. Futures prices on unleaded gasoline have risen some 17.5% during this time. And these figures are yet to show the full price pressure implicit in Saudi Arabia’s recent decision to join with Russia and the rest of the Organization of Petroleum Exporting Countries (OPEC) to cut back on production. Price increases at the wellhead and the refinery may wait a month or two before they get to the retail gas pump, but matters clearly say that the kind of energy price relief of the last two or three months is not likely to persist. Even if energy does not add to inflationary pressure, though it now seems likely to do so, the still powerful pressure elsewhere should carry the headline figure up at a disquieting pace.

Other components of the CPI may offer relief in coming months, though from what information is presently available, there is no sign of that happening. Even a modest easing in the pressure on food prices could have a considerable effect, since food constitutes some 13.6% of the average household budget. But even if by some unlikely chance, some individual component offers a good month’s reading, nothing on the horizon offers any reasonable hope that general inflationary pressures will dissipate. Whether slightly higher or slightly lower than the recent past, unacceptable inflation is here to stay for a good while yet and with it continued pressure on the Federal Reserve (Fed) to carry on with its planned interest rate hikes and other anti-inflationary measures.

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