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Yes, there was good news in the June inflation report

Take a look at the subhead in the Washington Post this morning:

Nothing? Really? How about this?

And there's this, released alongside the inflation report:

This is certainly not good news for workers. But if it's a wage-price spiral you're worried about, it's terrific news.

Finally, if you could wait a day, BLS released the June figures for the Producer Price Index this morning:

There's no trick here. Inflation is high and headline CPI is especially high. But if you want to understand the underlying inflationary pressures in the economy—not the effects of OPEC and bad weather and a war in Ukraine—you look at core inflation. And that's been going down since February.

46 thoughts on “Yes, there was good news in the June inflation report

  1. KenSchulz

    Since evidence of a wage-price spiral persists in not showing up, I am hearing more talk from the inflation-ChickenLittles about an expectations-driven spiral. ISTM that evidence of excess expectations-driven demand would show up as higher rates of price increases for big-ticket durable goods relative to other consumer goods. Guess I’ll see if FRED has that data….

      1. KenSchulz

        Oh, I agree; I keep asking our local inflation hawks for evidence of any kind of mechanism that would drive inflation persistently, and getting no answer.

        1. ScentOfViolets

          Because if they did, testable -- falsifiable! -- predictions could be made. Can't have that, now can we? Also conspicuously missing is what sort of proof they would accept to convince them they are wrong. Feh.

    1. D_Ohrk_E1

      The two -- wage-price spiral and inflation-expectation spiral -- are not mutually exclusive. If you expect inflation to remain high, you demand higher raises and wages.

      Faster price increases of high-ticket items wouldn't necessarily signal inflation expectations. They could simply show that upper class is not price-sensitive to inflation.

      1. KenSchulz

        By big-ticket I didn’t mean luxury goods; I meant mass-market products that represent a significant outlay for the middle income quintiles: vehicles, white goods. And yes, the top decile worry more about their portfolios than the price of Viking stoves …

      2. KenSchulz

        If you expect inflation to remain high, you demand higher raises and wages.

        I keep hearing this from inflation-hawk economists. How, in a 45-year career, did I never have a job where I could ‘demand’ a raise and get it?

        1. D_Ohrk_E1

          In this case, it usually means that you have to change jobs to a place that pays better. Long gone is the time when people stayed at one company for life.

        2. Jerry O'Brien

          For some workers, not just the elites, a disappointing pay increase can lead to less-than-superlative performance. Basically, if the thought even crosses their minds, "why should I bust my ass?", the company stands to lose productivity.

    2. KenSchulz

      So I found this https://fred.stlouisfed.org/series/CUSR0000SAD
      Index for durables/urban consumers has risen since Covid almost to the level of 25 years ago(!); but has been stable since January.
      FRED offers the ‘sticky price index’ as an indicator of expectations: https://fred.stlouisfed.org/series/CORESTICKM159SFRBATL
      They assert

      Because these goods and services change price relatively infrequently, they are thought to incorporate expectations about future inflation to a greater degree than prices that change on a more frequent basis.

      and cite https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/economic-commentary-archives/2010-economic-commentaries/ec-201002-are-some-prices-in-the-cpi-more-forward-looking-than-others-we-think-so.aspx
      My rule of thumb is to be very skeptical of any claim in the social sciences that is based on a single study and/or hasn’t been tested out-of-sample. On top of that, the ‘inflation expectations’ mechanism is presumed to work via purchasing sooner than need, and many items on the ‘sticky-price’ list are impractical or impossible to stockpile (e.g. motor-vehicle repairs, piped-in natural gas). In sum, I’m taking the expectations stuff with a grain of salt for now.

        1. KenSchulz

          Yes, the history of measurement of the charge of the electron by Millikan and later investigators, was quite revealing ….

          1. Special Newb

            I have no idea if that's a joke or not but there are plenty of hard science papers that are knowingly bullshit.

            1. ScentOfViolets

              Name them, link to them, and explain why they are out-and-out bullshit rather than merely being wrong. Then we'll discuss 'em. See, that's how science works 😉

  2. golack

    Inflation rate is going down, but inflation still high.

    Unfortunately the Fed is talking themselves into a higher jump in their rates than needed just to show they are taking inflation seriously--even though the main inflationary shocks are not under their control. Fed rates still low, but big jump will be too much--fuel prices will only drop so much if economy is doing well.

    Right now, there is still pent up demand for doing things that couldn't be done during the pandemic. That will fade over time.and we'll be in the new normal with boomers retired. Oh, and Europe is cheap right now.

      1. KenSchulz

        It’s been going on for months. It’s not like it has been a secret that autocrats and would-be autocrats like MBS, Xi Jinping, Erdogan and Modi have been siding with fellow autocrat Putin. They all think they will be winners in a world returned to 19th-century rules.

        1. Jerry O'Brien

          I'm afraid that is so. But Erdogan's Turkey is still a U.S. ally and didn't even stand very long against Finland's and Sweden's joining.

          1. KenSchulz

            True, he’s been walking a middle path. He appears to be working toward a deal that will allow grain to be shipped from Odessa, and the UN is now involved in the negotiations. That would be a very significant achievement.

          2. MontyTheClipArtMongoose

            Erdogan would go further in his obstreporous opposition to the liberal order, but unlike his real ally in pseudo-European despocy Viktor Orban, Reycip is a Muslin where Vik believes in the one true God, Jesus Christ. So, Turkish autocrats will get pushback more greatly & easily from real Europeans than will their brothers in Christ, Fidesz.

            In reality, of course, both Turks & Magyars are marauding, barely civilized horsepeople from the Central Asian steppe, more Borat than Nils Bohr. But in Christ, all things are possible -- even becoming white!

    1. Spadesofgrey

      Biden likely supports this. It pretty much means energy traders hunches after the war is dead. It also means Russia is desperate and is basically removing a weapon from its arsenal.

  3. jamesepowell

    CPI =/= inflation, but it's the "score" used by nearly everyone.

    Yesterday, Bostic of the Atlanta Fed says that an increase of 100 basis pts was possible because they don't like the way the numbers are moving. Apparently they are not looking at the same numbers as Kevin.

  4. Special Newb

    Note: According to your chart core inflation decline has slowed from the earlier part of the year. That is worrisome.

      1. Special Newb

        Why? There's nothing we can do about it and it's some months until the nudging test mission does it's test.

      2. rick_jones

        Astronomers discovered the sneaky asteroid using data from the Panoramic Survey Telescope and Rapid Response System (Pan-STARRS) – a system of cameras and telescopes based in Hawaii with the primary goal of detecting near-Earth objects, or NEOs.

        Hopefully that isn’t on one of the peaks considered too sacred for such things.

  5. DaBunny

    I am not good at reading this stuff. But from https://www.bls.gov/web/ppi/fdidperch.pdf, it looks like those numbers are just wrong, at least Kevin's last chart.

    "Final demand goods less foods and energy" (aka Kevin's "core goods", right?) was up 9.1% in June. Not the 7.7% shown in the chart.

    And "Final demand services" was up 7.7%, not the 6.3% shown in the chart.

    What am I missing?

    1. KenSchulz

      You’re missing intermediate-demand, the other component of the PPI. It is aggregated with final-demand goods and services to determine the PPI.

    1. DaBunny

      CPI overhead? This is the Producer Price Index. PPI, right? And can you explain what you mean by "overhead"

      In my link above, if you go to page 26, the second page for Index Code FD413, (Final demand goods less foods and energy) you'll see what I believe are the correct figures.

      Or am I just feeding the troll here?

  6. Leo1008

    Yesterday there was a headline in, I think, the WP about spiking gas prices. I skimmed the article (yes, I admit, I have a really hard time reading a millionth article about the sky falling down), and did not spot any mention about the downward trend in gas prices:

    When a narrative is set, it’s set.

  7. Zephyr

    I've never understood this idea that employees can "demand higher wages." Every place I've ever worked you get a once annual, at most, employment review that may or may not include a raise, but it is almost never greater than inflation no matter what. These annual reviews always occur around January or on your employment anniversary, and there is no other time to "demand higher wages." Most businesses have to pay similar wages to others in the same business in order to keep employees, so it is not like you can quit and move somewhere else to get a dramatic boost in pay. In inflationary times inevitably your employer will moan and groan about how their costs have skyrocketed and they can't afford to pay you more, so you get the usual modest bump that doesn't keep up with inflation.

    1. realrobmac

      I think the main thing employees can do to "demand" higher wages is find another, higher-paying job. I'm a manger of a small group and my corporate overlords are expected to tell us that our raise pool for the next pay raise cycle coming in August is 3%! Personally this has me freaked out that I am going to lose people because amounts to a new pay cut of 4 to 5% depending on what numbers you use. I'm in the software industry so it won't be hard for my employees to find new jobs that pay more. Corporate stupidity at its worst. Every person we lose will cost us a lot more than would actually paying them what they deserve.

    2. Leo1008

      @Zephyr: you describe, more or less, my own experience. Employees, on their own, do not seem to have much power to break through the seemingly well-entrenched system you are talking about. And I have often found it humorous when I come across various "advice" columns telling employees how to sell themselves, negotiate with their employer, and strike a bargain for a raise. Any and all such effort, in my experience, would be met with the reply to wait for the annual review and see what comes of it. But this may lead to the question of why Unions have apparently lost some of their previous influence. It would seem that their collective bargaining power is required to improve the situation for employees ...

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