Contrary to the premature declarations of victory over inflation by Nobel laureate economist Paul Krugman, recent data suggests that inflation is far from being a closed chapter in our economic narrative.
As the festive cheer of the holiday season fades, the specter of inflation looms large over the United States economy. Contrary to the premature declarations of victory over inflation by Nobel laureate economist Paul Krugman, recent data suggests that inflation is far from being a closed chapter in our economic narrative. According to the Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) rose at an annualized rate of 3.7% in December, a figure nearly triple that of the preceding month and almost double the rate of the same period last year, signaling that the transitory nature of inflation may have been a miscalculation.
The core CPI, which excludes the volatile prices of food and energy, climbed to an annualized 3.8%, marking a significant uptick from the previous month. Even more alarmingly, the Federal Reserve's "supercore" inflation measure, which further removes housing costs from the equation, surged to an annualized rate of nearly 5%. These numbers reveal an uncomfortable truth: despite the most aggressive tightening of credit by the Fed since the 1970s, and the most severe since the 1930s in terms of money supply contraction, inflation persists.
The resilience of inflation can be partly attributed to the federal government's continued robust spending. The federal deficit for December alone soared to an eye-watering $130 billion, a staggering increase from the typical deficits during the Trump administration and the $80 billion recorded last year under President Biden.
This fiscal profligacy, combined with the abundant funds that banks and hedge funds had parked at the Fed, has resulted in a liquidity that is abundant on Wall Street but painfully scarce for ordinary Americans grappling with soaring housing costs and rising credit card debt.
As the nation grapples with the twin challenges of inflation and a looming recession, the path ahead is uncertain. With federal spending at the heart of the economic crisis and the political establishment seemingly indifferent to the fiscal recklessness, Americans are braced for a continued cycle of inflation, recession, and joblessness reminiscent of the 1970s.
For an in-depth analysis of the current economic climate and its implications, check out the latest podcast episode at peterstonge.com. Stay informed, stay vigilant, and see you next time.