Sometimes I have to ask myself if the people in charge actually know how to read.
Honestly I’m not entirely sure. Perhaps they know how to read… but they choose not to do so. Because it’s pretty obvious no one is paying attention to the details in the government most recent inflation report, which was just released this morning.
Everyone is cheering the news of 2.9% inflation, which the government said is “the smallest 12-month increase since March 2021”.
Sure, on the surface, it’s decent news. And I’m sure Joe Biden and Kamala Harris are going to issue some remarks patting themselves on the back– something like, “while there is still more work to be done, today’s report shows that we are making significant progress in fighting inflation thanks to my policies. . .”
But if they just scroll down even a few paragraphs into the inflation report, they’ll see the details which really matter.
One glaring issue is that inflation first reached a low of 3% in June 2023 – more than a year ago. This means that, over the past thirteen months, the annual rate of inflation has dropped from 3% to 2.9%.
That’s a decline of just 0.1% over the past year. Is this really something to celebrate? At that rate, it will take more than a decade for inflation to reach 2%.
The next issue is the month-by-month data.
The “headline” inflation number means that the Consumer Price Index has increased by 2.9% over the last twelve months. But they also track this on a monthly basis.
In May, for example, the monthly increase in inflation was unchanged at 0%. In June, the inflation rate actually fell month over month, i.e. -0.1%.
But the monthly increase from June to July increased to 0.2%. That’s not slowing inflation. That’s increasing inflation.
At least 0.2% is a relatively small number, though. So let’s skip that for now and move on to the other details, and check out the prices of the things that Americans actually buy.
Electricity prices are up almost 5% year over year. Shelter (i.e. rent and housing costs) are up more than 5%. Medical costs are up 3.3%. Services in general, which include everything from childcare to tax preparation, are up almost 5%. Transportation is up nearly 9%. Motor vehicle insurance is up 18.6%!
Even food prices are up; as the report states, “the meat, poultry, fish, and eggs index rose 3.0% over the last 12 months” while prices of vegetables fell by 0.2% year over year.
So, good news if you’re vegan I suppose. But everyone else is paying more. Also, costs to eat out, including restaurants, take-out, and fast food, are up 4.1% over the past year.
You might have noticed by now that most of these numbers are well in excess of the 2.9% headline inflation rate.
9% increase in transportation costs. 5% increase in shelter. 3.3% increase in medical. 5% increase in electricity. How does all of this inflation somehow average DOWN to just 2.9%?
Well, there was a minor dip in gasoline prices year over year, but that’s relatively minor at just 2%.
The BIG decline that’s dragging the average inflation rate down to 2.9% is USED CARS. That’s it.
According to this morning’s report, used car prices are down nearly 11% over the past twelve months. And rightfully so, to be honest. We probably all remember how prices of used cars surged during the pandemic because of a complete breakdown of the supply chain.
Well, those high used car prices have now fallen back to normal levels. This nearly 11% price drop is essentially the tail end of that cycle… meaning that future inflation reports several months from now won’t have the benefit of used car prices dragging down the inflation average.
The reality is that there’s still a lot of inflation in the real economy, and the government’s own numbers support that assertion. This temporary phenomenon of falling used car prices is masking the true inflation number.
It’s similar to how the explosion in government jobs is masking the true weakness in the private sector labor market right now. If you strip out the growth in government jobs from the labor reports, the real unemployment 
rate would be much higher than 4.3%. Similarly, if you take out the short-term impact of falling used car prices, the real inflation rate would be much higher than 2.9%.
Joe Biden and Kamala Harris are still going to take a bow today, as if their high deficits and anti-capitalist policies have solved the problem. But few people will be dumb enough to believe them.
Peter Schiff
August 14, 2024
