11 May 2022

It's Inflation Day

Year over year inflation fell from 8.5% to 8.3%, which is still pretty damn high.

You have fragile international supply and transport chains breaking down, either from war or from things like the Shanghai lock-down, energy prices and food prices rising sharply, and a whole lot of profiteering from businesses that do not face meaningful competition.

The Federal Reserve, of course, is focused on driving down wages, even though they have been outpaced by corporate profits, because that's their thing:

U.S. inflation edged down to an 8.3% annual rate in April but remained close to the fastest pace in four decades as the economy continued to face upward price pressures.

The Labor Department’s consumer-price index reading last month marked the first drop for inflation in eight months, down from an 8.5% annual rate in March. The decline came primarily from a slight easing in April gasoline prices, which have since reached a new high. Broadly, the report offered little evidence that inflation was cooling.


On a monthly basis, the CPI rose a seasonally adjusted 0.3% last month after a 1.2% increase in March. However, the so-called core-price index—which excludes the often-volatile categories of food and energy—increased 0.6% on the month, a sharp pickup from March’s 0.3% gain, providing a sign of broad-based inflationary pressure.

Services prices, excluding energy, rose 0.7% in April from March, the fastest one-month increase since 1990.

April’s report offered a mixed picture for vehicle prices, which have risen sharply since last year due to demand and supply shortages. Used car and truck prices were up 22.7% on the year in April, down from a 35.3% rise in March. But new vehicle prices were up 13.2% from a year ago in April, the largest 12-month increase since 1949.

The Fed faces the tricky feat of tightening monetary policy enough to quell inflation and cool the economy without throttling growth and causing a recession. Central-bank officials on May 4 raised rates by half a percentage point, the biggest increase since 2000. 

It's not tricky at all for the Fed at all.  If they over-tighten and there is a recession, they are lauded for making the tough choices, and if they get it right, something that they have never really done, then they are lauded for threading the proverbial needle.


A steady pickup in housing costs, which account for nearly one-third of the CPI, is also adding to inflationary pressure. Both tenant rent and so-called owners’ equivalent rent, which estimates what homeowners would pay each month to rent their own home, rose 4.8% from a year earlier, a pace last seen in the late 1980s and early 1990s.

This is where it can get nasty.  Home sales are extremely sensitive to interest rates, people buy based on monthly payment, not price, and the demand for adjustable rate mortgages are surging, so it sounds like we are going to be partying like it;s 2009:

We can’t possibly be doing this again, right? From CNBC:

“Despite a slow start to this year’s spring home buying season, prospective buyers are showing some resiliency to higher rates. Purchase activity has now increased for two straight weeks,” said Joel Kan, an MBA economist, in a release. “More borrowers continue to utilize ARMs to combat higher rates. The share of ARMs increased to 11% of overall loans and to 19% by dollar volume.”

At the start of this year, when rates were still hovering near record lows, the ARM share was just 3% of all purchase applications. At 11% that is the highest share since March 2008.


You may recall that, back "in the early 2000s," almost nobody was talking about the danger of "poorly underwritten, interest-only ARMs," and the few people who pointed out that those "poorly underwritten, interest-only ARMs" were a nuclear time bomb at the heart of the world economy were utterly ignored, when they weren’t being ridiculed. The economy was sold as "robust," a veritable "boom." The fact that a chunk of it was built on Florida strippers who owned four houses was not widely known. In fact, the financial-services cowboys actively downplayed risks they absolutely knew were there. They knew the risks were there because they found ways to monetize those risks. From CBS News:

There's a useful term for such behavior -- it's called a "control fraud." That's how William Black, an economics and law prof at the University of Missouri-Kansas City, describes what happens when "seemingly legitimate entities," like companies, are used by executives to wrongly enrich themselves. In banking, such frauds typically involve lenders using bogus accounting to hide dodgy loans to uncreditworthy borrowers and deploying massive leverage to maximize gains.

These days, "Control Fraud" seems to describe the entirety of the US economy.


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