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The Bureau of Labor Statistics reported that consumer prices fell .1% in December, continuing the deceleration in the monthly inflation numbers since last summer. For 2022 the national CPI rose 6.5 percent, down from the year-to-year change in June, when prices rose 9.1 percent, the highest inflation rate in 40 years. Has inflation peaked for this cycle?
The long-term chart of the CPI reveals that most Americans have not experienced high inflation during their lifetimes. In fact, anyone under 60 years old, may not remember the huge price increases of the late 1970s and early 1980s. Nevertheless, general price inflation, which is caused by the Federal Reserve—don’t you wish you had an unlimited checking account like the Fed? –has begun to reduce the money supply. This in part explains why the monthly CPI numbers have decelerated from the 1.3 percent jump in prices last 2022 to a negative 0.1 in December.
A major reason for the decline in the December CPI is the drop in both gasoline and housing prices. Will this trend continue? Yes and no. Oil prices are rising again but housing prices in selected geographic areas may not decline or drop marginally. This is reflected in the city averages. Southern cities have had the highest year to year to increases in the CPI, driven primarily by housing prices, a reflection of the migration of individuals and families to the Sunbelt. Phoenix and Seattle have had a spike in the CPI in 2022.
As the BLS points out in its press release.
The index for gasoline was by far the largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes. The food index increased 0.3 percent over the month with the food at home index rising 0.2 percent. The energy index decreased 4.5 percent over the month as the gasoline index declined; other major energy component indexes increased over the month.
The index for all items less food and energy rose 0.3 percent in December, after rising 0.2 percent in November. Indexes which increased in December include the shelter, household furnishings and operations, motor vehicle insurance, recreation, and apparel indexes. The indexes for used cars and
trucks, and airline fares were among those that decreased over the month.
The all-items index increased 6.5 percent for the 12 months ending December; this was the smallest 12-month increase since the period ending October 2021. The all items less food and energy index rose
5.7 percent over the last 12 months. The energy index increased 7.3 percent for the 12 months ending December, and the food index increased 10.4 percent over the last year; all of these increases were smaller than for the 12-month period ending November.
In other words, on a month-to-month basis, prices fluctuate because of numerous micro and macro factors–weather, supply chain issues, military conflicts, government spending, among others.
My sense is that we are on another multiyear inflation cycle like the one we had from 1965-1982, when the Great Society/Vietnam War spending kicked in followed by the two oil shocks of the 1970s. In other words, the Federal Reserve “enabled” the federal government spending spree by increasing the money supply to help pay for the explosion in the welfare-warfare state. And the OPEC nations jacked up oil prices in the early 1970s in response to both the Yom Kippur War in the Middle East and getting paid in depreciating US dollars.
How does this all end? With a major financial crisis by no later than the middle of the 2030s.
I will be monitoring the Fed, prices, and government spending regularly to provide updates on the impact of the Federal Reserve’s “legalized counterfeiting.”
On February 3, I will announce the first monthly awards by Murray’s Newsletter. One will be for egregious behavior and the other for outstanding contributions to our country. Stay tuned.
Murray Sabrin, PhD, is emeritus professor of finance, Ramapo College of New Jersey. Dr. Sabrin is considered a “public intellectual” for writing about the economy in scholarly and popular publications. His new book, The Finance of Health Care: Wellness and Innovative Approaches to Employee Medical Insurance (Business Expert Press, Oct. 24, 2022), and his other BEP publication, Navigating the Boom/Bust Cycle: An Entrepreneur’s Survival Guide (October 2021), provides decision makers with tools needed to help manage their businesses during the business cycle. Sabrin’s autobiography, From Immigrant to Public Intellectual: An American Story, was published in November, 2022.