The latest U.S. data show that inflation is not threatening the recovery. According to Carl Weinberg chief economist at High Frequency Economics, the breakdown shows that the inflation rate has been limited to particular sectors.
CPI inflation in the United States came in at annual 6.2% in OctoberThis is its highest ascent in over 30 years.
The gains were led by energy, shelter, and vehicle costs, which more than offset the wage rises that workers got for the month.
Many economists are questioning the Federal Reserve’s belief that this spike is temporary due to persistently high inflation, and continued supply chain pressures like bottlenecks.
However, stronger-than-expected October retail salesThis week’s industrial production and economic figures have shown that the wider economic recovery is on track even though inflation continues to drive prices upwards.
Weinberg stated on Wednesday to CNBC’s SquawkBox Europe that the U.S. has almost recovered, with both industrial output and GDP returning to pre-pandemic levels. Weinberg said that labor market weakness is typical for economic recessions, with recovery from the 2008 financial crisis and the subsequent unemployment of around 10 years taking place.
Those are my thoughts. November’s jobs report indicatedNonfarm payrolls increased by 531,000 in the month of October, indicating that the labor market was gaining momentum. This drove down unemployment to 4.6%.
We have problems in specific areas of the economy and not all. Weinberg stated that although I was shocked to see the numbers for industrial production and manufacturing, it is what it is. This means that we should be able to increase productivity by perhaps 3% to 4% compared to before the pandemic.
He said that market must keep productivity gains in view when considering wage increases. These are “tolerable” with stable, steady prices, as long as these are balanced by productivity gains.
Weinberg used High Frequency Economic’s aggregation data to determine the CPI reading. Weinberg concluded that approximately one-third are in decline, while the remaining half were growing at less then 2%. Weinberg said this was not inflation.
Weinberg stated that “the rise in selected categories and scattered products within CPIs is making those averages for the basket price move higher but that does not mean all prices are rising along with all wages.”
Inflation refers to a spiralling of wages and prices. It isn’t a single-time phenomenon, but a temporary shock that causes a sudden increase in prices.
Don’t listen to ‘hysterical’ people
Weinberg used Milton Friedman’s argument that Fed intervention on the basis of these pockets of inflation spikes would probably do more harm than good. He also mentioned comments made by Jerome Powell (Fed Chair) and Andrew Bailey (Bank of England Governor), who both suggested that tightening policies in response to inflation due to temporary supply shocks could be counterproductive.
Let’s not let hysterical Larry Summers tell us inflation is on the rise. Weinberg stated, “Let’s hear what those who are actually making policies are saying to us.”
CNBC reached Summers to discuss the matter. CNBC reached out to Summers for comment. In recent weeks, the former U.S. Treasury Secretary has called upon the Fed and Biden administrations to combat rising inflation. He argued that the term “transitory” had been used too often.
Summers is the Harvard University’s president emeritus. He has been a long-time advocate for more expansionary fiscal policy and monetary policy. Washington Post op-edHe had earlier stated that he was changing his mind in light of new evidence. He also challenged the belief that inflation could be limited to certain sectors.
Summers reported that “in October, the prices for commodities goods other than energy and food rose at over a 12 percent annual pace.”
“Various Federal Reserve system Indexes, which exclude extreme price movement sectors, are at record highs.”