Taps Coogan – October 14th, 2022

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As the following chart from Statista highlights, high inflation has outpaced wage gains yet again in September, marking the 18th consecutive month of declining real wages since April 2022. Over the past year, inflation has outpaced wages by a whooping 3%.

Yesterday’s headline CPI reading of 8.2% was slightly lower than the headline number from August (8.3%), July (8.5%), and June (9%). Technically speaking, year-over-year headline CPI has been declining ever so slightly since June. Core CPI, set a new cycle high of 6.6% on the back of service sector inflation, but remains lower than the headline number.

While it seems as though inflation is getting ‘stuck’ at 8%, zooming out provides some perspective. There have been five rapid spikes in CPI above 8% since Word War II. Each time inflation hung around at the highs for a half-a-dozen months or more and then plunged lower as economic activity started to decline.

In 2020 and 2021 we wrote literally dozens of articles looking at the money supply, inflation expectations, PMIs, commodity prices, consumer spending, rent, etc… and warning that those indicators suggested a sharp rise in inflation (here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, etc…).

When we look at those indictors today, most point to inflation rolling over. That’s been true for a handful of months, but CPI lags reality by several months, and the energy crisis has dragged things out. The possibility of another spike in oil prices if the price-cap scheme is attempted and Russia reduces oil exports, means that making predictions about inflation this winter is a fool’s errand. Nonetheless, when we look back at the chart above several years in the future, yours truly strongly suspects that this inflation spike will look as sharp as the past ones.

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