While the White House is busy celebrating the Inflation Reduction Act and lower gas prices, inflation is marching forward. The White House argument that we’ve hit peak inflation is the dovish argument for the Federal Reserve to slow or halt raising interest rates. If inflation really is improving, there’s little reason for the Fed to raise rates like everyone expects this week. But that’s precisely what’s going to happen.
While the White House is spinning a tale of an improving economy, the data, both hard and anecdotal, is poor. While the Bureau of Labor Statistics highlighted the drop in gasoline prices, they also pointed out that prices for everything else went up.
New CPI report comes in hot.
The BLS said, “Increases in the shelter, food, and medical care indexes were the largest of many contributors to the broad-based monthly all items increase. … The food index continued to rise, increasing 0.8% over the month as the food at home index rose 0.7%. The energy index fell 5.0% over the month as the gasoline index declined, but the electricity and natural gas indexes increased.”
That last line about electricity and natural gas is critical. While gasoline prices are down, utility bills are up. The nature of inflation is changing — it’s not just about gasoline prices at the pump.
The Wall Street Journal reports that “From New Hampshire to Louisiana, customers’ electricity rates are increasing. The Energy Information Administration anticipates the residential price of electricity will average 14.8 cents per kilowatt-hour in 2022, up 7.5% from 2021. The agency forecasts record gas consumption this year amid surging prices, in part because power producers are limited in their ability to burn coal instead due to supply constraints and plant retirements.”
How alarming is this increase? It’s enormous: “The U.S. consumer-price index for electricity in August climbed 15.8% over the same month a year ago, the biggest such 12-month increase since 1981, according to a report from the U.S. Bureau of Labor Statistics.”
Paying more for everything.
Food costs continue to rise, as well. But notable in the latest report was the increase in housing costs. The BLS said, “The index for all items less food and energy rose 6.3% over the past 12 months, a larger increase than the 5.9% increase for the 12 months ending in July. The shelter index rose 6.2% over the last year, accounting for about 40% of the total increase in all items less food and energy.”
When you put those factors together, you clearly see that basic living costs are going up. The average American consumer is paying more for food, electricity, mortgage payments, and rent.
The downstream impacts of this rise are rippling throughout the economy. Home goods stores, for example, are struggling with sales because consumers spend less on home improvement or decorating and more on rent and mortgage payments. Companies that rely on home goods are reining in costs and weighing layoffs as a result.
Companies are hurting.
Companies like Scotts Miracle-Gro are struggling too. Scotts spent two years trying to keep up with demand and get products on the shelves. Now, they can’t sell anything. According to the Scotts Miracle-Gro CEO, the company has “cut about 450 jobs, or around 6% of its workforce, since May, and more layoffs are coming. Manufacturing plants have been slowed. Cash is dwindling. Nobody is getting bonuses. Instead, the company is in full-blown crisis mode.”
The WSJ reported similar for other companies, “Newell Brands Inc., the maker of Yankee candles and Sharpie markers, said that in a span of six weeks starting in early August, it went from being comfortable with its retailer stocks to cutting its sales and cash-flow forecasts for the year after chains slashed orders.”
FedEx took some of the most drastic actions of all. In its earnings release, FedEx pulled 2023 forecasts and guidance saying that conditions had deteriorated. The CEO said he expected a recession in 2023. FedEx announced layoffs and several forms of cutbacks to their budget.
Inflation marches on.
There’s what Joe Biden says about the economy versus what corporations are doing. Joe Biden praises the economy and says nothing is wrong. Businesses are preparing for the worst while hoping for the best. Actions speak louder than words, however. Layoff announcements and cutbacks are becoming a norm under Biden.
And despite what Biden says, the Federal Reserve is not acting like we’ve hit peak inflation or that they can take their foot off the pedal. The Fed is acting as if inflation is still a persistent threat to the economy and that things are bad. That’s why everyone expects more rate hikes this week and more economic pain in the future.
Inflation is marching on, and so is the pain that stopping it brings. If you’re an average American, that leaves very little to celebrate these days.