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A Better Perspective On Inflation

9/13/22
from The Gray Area:
9/13/22:
The Bureau of Labor Statistics released its monthly Consumer Price Index today. Inflation continues, prices were still up in August.  The stock market drop over 1200 points, second largest drop since March 2020. Gas prices are down, food & housing are up. A number of economists had been hopeful that the precipitous, two-month decline in gas prices would help markedly cool inflation, but it did not. Those same experts blame supply chain problems, the global economy, the Russia-Ukraine war and greedy corporations. And, it depends where you live, western states are facing an inflation rate of 9.6% The U.S. trade deficit is falling as U.S. consumers tighten purse strings.

Here is a better perspective on the issue of inflation today. According to Maudlin Economics, while the Consumer Price Index didn’t cool off as much as expected in August, the latest CPI data isn’t especially important. The real inflation challenge is an imbalanced labor market. High worker vacancies are keeping service prices elevated and propping up core inflation even as goods prices stabilize. Today’s CPI report wasn’t a game changer. A “better balance” in the labor market would be a game changer.

  • Core CPI is suffering from a rather sticky, wage-driven surge in service prices.
  • An elevated vacancies-to-unemployment (V/U) ratio is a significant contributor to inflation pressure.
  • The effects of higher V/U strengthen as the ratio increases.
  • Victory over inflation will be elusive until V/U normalizes.
Bottom Line: The Federal Reserve can generate unemployment if it tightens hard enough. It has no way to produce the new workers businesses need, nor does anyone else – at least not quickly. Falling energy and goods prices help, but won’t solve this deeper, structural problem. So, how did workers get chased away from the workforce? As the Maudlin experts say, this can be fixed, but it will not be done quickly. More From Maudlin Economics: More From Institute for Family Studies:


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