The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in September on a seasonally adjusted basis, after increasing 0.6 percent in August, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.7 percent before seasonal adjustment.
The index for shelter was the largest contributor to the monthly all items increase, accounting for over half of the increase. An increase in the gasoline index was also a major contributor to the all items monthly rise. …
The index for all items less food and energy rose 0.3 percent in September, the same increase as in August. The all items index increased 3.7 percent for the 12 months ending September, the same increase as the 12 months ending in August.
The all-items CPI-U is used for the inflation adjustment on TIPS. The Federal Reserve looks at the “core” CPI but preferentially at the core PCE inflation which is reported the week after the CPI. (They are generated by different departments.)
Inflation is stickier than many market participants hoped. The Fed’s own gauge of “Sticky Price Inflation” is much higher than their 2% target. This chart shows Sticky Price Consumer Price Index less Food and Energy over the past 3 months. The Sticky Price Consumer Price Index (CPI) is calculated from a subset of goods and services included in the CPI that change price relatively infrequently. Because these goods and services change price relatively infrequently, they are thought to incorporate expectations about future inflation to a greater degree than prices that change on a more frequent basis.
The Fed won’t be happy to see this. Although the Fed has said that they will adjust the fed funds rate based on updated data, there is speculation that the Fed won’t raise the fed funds rate because the longer-term Treasury yields are spiking and will tighten the economy for them.
He may have. It is sticky because we want high growth and a balance between taxes and interest rates. Rate hikes are a blunt instrument. Taxes can be altered but it takes more coordination than we are seeing.
Is there any evidence that US inflation is “sticky” because production is being constrained by too small a labor force? As we move steadily to an upside-down demographic pyramid, more demand is coming from folks who aren’t contributing to the supply. Perhaps we have reached a point where supply cannot keep up.
If that is the case, then the only way to “unstick” inflation on a sustainable basis is to 1) increase the work force (immigration), 2) increase supply (globalization of trade), or 3) increase productivity (AI-automation).
Raising interest rates and monetary tightening assumes that the current inflation is about economic activity when the root cause may actually be demographics.
The factories in bulk come online in mid-2024. There is no one-time schedule for the factory construction but they really begin to show up as completed in mid-2024 going forward. The economies of scale will build and inflation will truly fall globally.
The other factors are not leading factors.
For instance, hiring more farm field hands won’t solve industrial manpower matters.
Between the GOP looking at a fiscal cliff and Israel demanding 1 million people move…which is hard for OPEC to hear or take…oil is soaring.
Hate to reply to my own post but wanted to add that according to the US Chamber of Commerce, as of August 2023, there are 1.4M fewer workers today than in 2021.
Could a 2% reduction in the work force be enough to account for the current persistent inflation? Presumably the labor shortage has increased labor costs either in the form of higher wages to attract new workers or increased overtime for existing employees, which then raises product prices. It could even reduce production thereby lowering supply.
We may simply not have the labor force to accommodate rising demand from the pandemic recovery.
Is there any evidence that US inflation is “sticky” because production is being constrained by too small a labor force?
This is an interesting question. CPI measures general price level. The pandemic might have affected prices in some parts of the economy more than others. An aging population will have different effects than a shrinking workforce. A heatmap of the economy showing where inflation is highest would be interesting.
Wholesale inflation in US rises 2.2% in September, biggest year-over-year gain since April, October 11, 2023
“Excluding volatile food and energy prices, so-called core inflation rose 2.7% in September from a year earlier”
The Social Security Administration recently announced the cost of living adjustment (COLA) will be 3.2% for next year.
Social Security and Supplemental Security Income (SSI) benefits for more than 71 million Americans will increase 3.2 percent in 2024.
The 3.2 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 66 million Social Security beneficiaries in January 2024. Increased payments to approximately 7.5 million SSI recipients will begin on December 29, 2023. (Note: some people receive both Social Security and SSI benefits)
The largest inflation in the past year:
Food away from home 6.0
Transportation services 9.1
Longer term (10-year) numbers would show if these are just rebounds from the pandemic lows, or something new. Shelter now includes more home office space, as more people are working from home. Transportation prices might be higher as people traveled more after the pandemic restrictions were lifted. Food away from home price increases might be labor costs.
Inflation breakdown, Year over Year change to Sep.2023:
All items 3.7
All items less food and energy 4.1
Food at home 2.4
Food away from home 6.0
Energy commodities 2.2
Gasoline (all types) 3.0
Fuel oil(1) -5.1
Energy services -3.3
Utility (piped) gas service -19.9
All items less food and energy is:
Commodities less food and energy commodities 0.0
New vehicles 2.5
Used cars and trucks -8.0
Medical care commodities(1) 4.2
Services less energy services 5.7
Transportation services 9.1
Medical care services -2.6
Depends on their positions within the companies. If they are a variety of specialists and/or highly-trained/experienced, then it could be a problem to replace them in the near future. Over time, their successors should be able to become sufficiently experienced. Until then, business has to “make do” with who and what they can find.
This has been going on for a while now. (more than 10 years)
While it has been highlighted to an extreme degree with the Covid shutdown of 2020, the trend remains, intact and business plans have had this as a line item for a while.
We have a whole category of our discussions around succession planning and yet another around automation for dirty, dull or dangerous jobs that harm people.
As a matter of fact, I haven’t ever worked for a company that does not have these systems in place.
Complex systems are always shifting. These systems do not prevent the issue, but prepare to reduce the impacts of labor shortage, job loss due to injury, accident, voluntary separation (retirement) and other considerations.
This week we advanced our plans for 2024, just as we always have done. Will 2024 look different than our plans? Absolutely.
Will we have something laid out to react to that eventuality, Absolutely.
The labor shortages we have been dealing with are more like 10-18% in our areas. We shifted sign on and bonus pay to entice to check for an alternate equilibrium. We shifted wages up to reduce turnover related to compensation.
The result of those trials has us flexing overtime where needed and to cross train people into roles which are business critical and targets for assymetric turnover of any type.
I don’t believe overtime will be a problem that dominates 2024-2025, FWIW.
Not sure I agree. If restaurants have to pay more to get help, restaurant prices go up. If home builders have to pay more for guys to put up dry wall, home prices go up. Seems to me that worker shortages even at the bottom half of the salary ladder could substantially contribute to inflation.
If today’s inflation is a demographic issue resulting because an aging population is reducing the relative size of the work force, then that significantly changes the discussion about immigration.
It becomes less about feeling sorry for unfortunate foreigners and more about maintaining the nation’s economic health.
For me it has, since I picked grapes as a kid (unpaid and delightful on a small vineyard with expert pickers who taught me a LOT about both hook knives and exploitative vintners and farmers), it has always been and remains about stopping the utterly illegal immoral lying-through-their-teeth manipulative abuse of seasonal laborers by too damn rich politically powerful men,
the nation’s civic soul. The economics will follow after with No Problem at All.
Isn’t that always the relationship between “JCs” and their workers?
The local Detroit media is consistently parroting management talking points about the UAW. The “business editor” on one channel is an absolute tool of management, whining endlessly about all the people being laid off, all the vendors being hurt, the economy being hurt, because the UAW won’t lay down for whatever the “JCs” feel like paying.
Reality check, Mexican auto workers make about $100/wk. USian labor is never going to compete with that, because you would starve at that pay rate, unless the government subsidized your rent and groceries, for the benefit of the “JC”.
This crowd is overwhelmingly retired. Our generation blamed labor. We were right. Were being the operative word. We went to China for cheaper labor. We got goods back as China created manufacturing economies of scale that were a deflationary force on our economy.
The reality of labor inflation in the US won’t be going away. That is built into this part of the economic cycle.
We have cheaper labor for factories. We have that in Mexico. It is less expensive labor than Chinese factory labor. The “immigration crisis” from Central America is now a way to add labor to the Mexican workforce.
So we have cheaper labor for our factories in Mexico.
What the world does not have is an exporter of goods as a deflationary force. China has ceased to do that.
Until the US/Mexico and UK and Japan begin to export economies of scale in manufacturing there are major inflationary pressures. It is not simply what the Chinese produce, whether labor is expensive in China, supply chains, or gasoline prices. The lack of economies of scale in manufacturing worldwide is expensive.
The biggest things defining economies of scale are paying for the factories more rapidly, negotiating the delivery of resources more efficiently, creating better transportation systems that are efficable, and broadening the local market to pay for the factories. This is spurred by government policies. That includes regulations. If regulations are commonplace as a built-in cost and understanding their cost goes down on a per-unit produced basis. It is changes in regulations that are more costly. Regulations are in place to take costs down. Negative externalities avoided have major costs.
However, they were “labor”. So they are blaming themselves? No.
For the past 40-50 yrs, the problem was, and always has been, management. Chasing the next quarterly profit (and not looking at the long-term) in order to jack up profits so there would be BIG payouts to management–but not to labor. And when things didn’t work, the real problem was management. But they tried to ALWAYS shift the blame to labor. I solved lots of problems for businesses. Pretty much ALL those problems were created by management–with no outside help. When they screwed up, their response was “It doesn’t work !!! But it SHOULD !!”. When their basic premises were matched to their actual carrying out of their plan, they were NOT THE SAME.
Management advertises to the public they can ship a machine “same day”.
(Mis)Management instructions to production: Do NOT start/build any machine until there is an actual order received.
Machines are to be “burned in” for 24 hours before being shipped.
See the problem? Obvious solution, which we see all the time. I won’t say what it (the solution) is, but I know we have ALL seen that common solution.
Met a restaurant owner in our travels. It’s so hard to get employees, that she can only open for dinner, after decades of thriving with lunch and dinner service. She has raised wages astronomically, yet can only get unenthusiastic warm bodies. She told us of how the restaurant staff had been like family. She took the gov’t funds to keep from reducing staff, having to pay most of it back in the post-Covid attrition that resulted in lower head count. Many restaurants in the area are facing the same thing. We tried to go eat somewhere, just to be told not enough people showed up to work and they were not sure when they would open. She shared with us that the only reason this family business is able to remain solvent is because she owns her own building and is not subject to raising rents. This was in Pittsburgh, where it was evident the restaurant scene is struggling.
Yes, we need immigrants. Just wait until the bulk of the Boomers start needing care at home. There’s already a shortage of people willing to do elder nursing care. And how about trying to get someone to work on your home? Such a shortage of people doing that work makes it near impossible to get things done unless you do it yourself. We are shooting ourselves in the foot with the immigration issue. Not all things can be handled with cheaper labor overseas. Some services actually require a body, willing to work and grateful for the work. Here.
A couple years ago, there was commentary that the illegals on the southern border were no longer “all” Mexican, with the comment that Mexico was experiencing labor shortages.
Seems it still is?
These days, the news is dominated by “asylum seekers” from Honduras and Venezuela, but maybe some from El Salvador Guatemala, too.
It seems that the Mexican jobs market is soaking up their excess labor supply?
The original commentary from a couple years ago included many other countries also having a decrease in labor aged people.
It was asked
*“where will the Western, US, aging” countries get the needed labor?".
The only “country” with an increasing “youth” cohort was/is Africa.
Be aware that Africa is many individual countries, which resent being “lumped” into the single “Africa country”.
Zeihan beats the population structure drum these days. I’ve not seen anything from Zeihan about Mexican labor and growth stresses.
If Mexico-USia-Canada are going to form a Super Manufacturing Block, who gonna do the actual work?
From an investing perspective, we appear to have sticky inflation, a dysfunctional Congress, and a Fed determined to fix the problem with interest rates. I guess I should remain overweight cash, collect my growing interest payments, continue rolling over my cd’s, and hope to start adding to my equities sometime after the start of our next recession.