Government Inflation Metric Hits Highest Level In 6 Years

Written by Chris Marcus for the Miles Franklin blog

Last week the Wall Street Journal reported that one of the most commonly viewed inflation metrics rose by 2.9%, as compared to June from a year earlier. Which is certainly alarming in its own right, although perhaps even more so when you read between the lines of the somewhat biased government numbers.

To be clear, I personally stopped putting all that much stock into the BLS numbers that Wall Street looks at about a decade ago after learning how the formulas are revised, and how politicized they have become. Yet to the degree that the numbers are created, published, and then many people respond, it is interesting to think about some of the takeaways of this latest report.

U.S. inflation hit its highest rate in more than six years, with consumer prices eating away at modest wage gains by American workers and underscoring questions about how much they are benefiting from an economy that by many other measures is booming.

Prices rose 2.9% in June from a year earlier, the fastest pace since February 2012.

Even if you accept those numbers as they are, that’s a pretty high rate of inflation. Especially when you consider that the current yield of the U.S. 10-year treasury is 2.85%.

Put in other words, if you invested in treasuries, you can buy less actual “stuff” when you get your money back. Of course, that’s “if” you get your money back. Because after all, as the debt has crossed over $20 trillion, rather than hearing any discussion about how it’s ever going to be repaid, the projections are already talking about reaching $30 trillion by the end of 2028 (and if the bubble somehow hasn’t collapsed by then, I’m sure the amount would be well past even $30 trillion).

For a second month in a row, annual inflation fully offset average hourly wage growth over the previous year.

That left workers’ real hourly earnings flat over the 12-month period despite falling unemployment and a strong economy even as workers made up for higher prices by clocking slightly more hours a week in June.

Production and non-supervisory employees, a category which includes blue-collar workers, saw their real average hourly wages fall 0.2% in June from a year earlier after a similar slip in May.

This highlights what many in the Austrian Community have been talking about for years. That what is masked by the tricks and shenanigans that are disguised via the inflation tax, even as wages supposedly appear to be rising, they are flat, or possibly even negative. Because of the sleight of hand of the way these numbers are accounted for.

Of course the longer the trade war between the U.S. and China goes on, and the more these tariffs are actually implemented, that will only further add to the increase in price.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the Chinese goods subject to the newly proposed tariffs account for almost 6% of the core CPI, meaning that a 10% levy would lift the index by up to 0.6 percentage point.

“The latest proposed tariffs would significantly boost core inflation,” Mr. Shepherdson said in a note to clients. “People will seek to be compensated for the squeeze on their real incomes as a result of higher prices, and their chance of being able to force employers to pay up is better now than at any time since the crash.”

I find a report like this in the Wall Street Journal at this particular point in time to be rather fascinating. Personally I tend to lean towards the belief that a lot of what’s published in the mainstream media is very targeted, often with a deliberate intent to lead people to believe a certain perspective. Yet whether you believe that’s the case or not, this report sure furthers the premise that despite what’s happening beneath the surface, the Fed is going to continue hiking for now.

With the result being that the more the Fed hikes, the more likely the bubbles are to pop, and the sooner that is to happen. With the addendum that this also brings us closer to a revaluation higher in the price of precious metals.

Two week ago the Fed minutes indicated the Fed was concerned about inflation. Now the data the Fed supposedly looks at is indicating that prices are rising faster than expected.

Should be an interesting second half of 2018…

–Chris Marcus

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