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Consensus was convinced – with barely any outliers – that this morning’s consumer price index would print with an astonishing 7.0% YoY (and notably 7 of the last 9 releases have come in above consensus) and they nailed it with the 7% print at its highest since June 1982 (when ET was launched in the US)…
That is the 19th straight monthly rise in headline CPI and Core CPI also surged to its highest since Feb 1991 (printing hotter than expected at +5.5% YoY)…
Under the hood, commodities, shelter, and new-and-used cars and trucks saw prices jump the most. Energy actually saw a modest 0.4% retracement (that will not be the case in January)…
The cost of putting a roof over your head is accelerating once again. Shelter inflation rises to 4.13% Y/Y from 3.84%, the highest since Feb 2007…
In fact, while Services inflation rose to +3.7% – its highest since Jan 2007 – Goods inflation soared 10.7% YoY – its highest since May 1975…
Finally, and perhaps most importantly for Main Street, real average hourly earnings fell (down 2.4% YoY) for the 9th straight month…
So the next time a politician tries to tell you to be grateful that your wages are going up or you can move to a new higher paying job, just remind him that the surge in the cost of living is outpacing wage gains, thanks to The Fed’s money-largesse and Congress’ lockdown policies and helicopter money have crushed the quality of life for millions.
This quote from Ms. Davidson’s article perfectly illustrates the fallacy that higher prices are desirable:
”Broad-based price growth is signalling that the wage and price pressures are building, an indication that the economy is expanding at a solid pace and that recessionary concerns are overdone,” PNC economist Gus Faucher said.
Higher prices are the result of a combination of two factors, both of which are undesirable–lower output or an increase in the money supply which causes an increase in spending. The following simple formula of Professor George Reisman can be found on page 505 of his magnum opus Capitalism: A Treatise on Economics.
P = Dc/Sc
P is the general level of consumers’ goods prices, in the sense of the weighted average of the prices at which consumers’ goods are actually sold. Dc is the aggregate demand for consumers’ goods. as manifested in a definite total expenditure of money to buy consumers’ goods, and Sc is the aggregate supply of consumers’ goods, as manifested in a definite quantity of consumers’ goods produced and sold.
As further explained by Professor Reisman, “An expanding quantity of money operates to raise the general price level by virtue of raising aggregate demand relative to aggregate supply.”
In other words, the Federal Reserve Bank’s policy of printing more money causes aggregate demand to rise, but the rise in prices does not mean that more goods and services are being produced. It most probably means that more money is chasing the same or even smaller quantity of goods. In fact an increase in the quantity of money causes dislocations and disequilibrium in the structure of production, which causes the supply of consumers’ goods to fall.
Therefore, an increase in prices, which is commonly called “inflation”, is nothing to be desired by the general public.