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U.S. Labor Market Still Boosting Inflation, San Francisco Fed Economists Say
by Reuters
Kitco
SAN FRANCISCO, Nov 18 (Reuters) – A tight U.S. labor market is still adding to inflationary pressures, though less so than it did in 2022 and 2023, according to research published on Monday by the San Francisco Federal Reserve.
“Declines in excess demand pushed inflation down almost three-quarters of a percentage point over the past two years,” San Francisco Fed economists Regis Barnichon and Adam Hale Shapiro wrote in the regional Fed bank’s latest Economic Letter. “However, elevated demand continued to contribute 0.3 to 0.4 percentage point to inflation as of September 2024.”
The finding, based on an analysis of the relationship between inflation and labor market heat as measured by the ratio of job openings to job seekers, could help inform Fed policymakers as they weigh how much further and at what pace to reduce short-term borrowing costs.
How Much Has the Cooling Economy Reduced Inflation?
by Regis Barnichon and Adam Shapiro
Federal Reserve Bank of San Francisco
Inflation still lies somewhat above the Federal Reserve’s 2% goal after slowing significantly since its spring 2022 peak. Analysis shows that two labor market indicators—the ratios of job vacancies to unemployed workers and of vacancies to effective job seekers—are particularly informative in determining excess demand’s impact on recent inflation. The measures suggest that declines in excess demand pushed inflation down almost three-quarters of a percentage point over the past two years. However, elevated demand continued to contribute 0.3 to 0.4 percentage point to inflation as of September 2024.
The well-known Phillips curve explains the relationship between inflation and unemployment—specifically that inflation is high when overall demand exceeds overall supply. With current inflation still somewhat above the Federal Reserve’s 2% goal, it is plausible that excess demand remains in the economy. Our prior research found that labor market tightness as measured by the ratio of job vacancies to unemployment (V–U ratio) outperformed other common measure of excess demand in forecasting inflation (Barnichon and Shapiro 2022).
Will Inflation Rise Under Trump? Economists Weigh In
by Shane Croucher
Newsweek
Voter dissatisfaction with the economy, particularly the high cost of living after post-COVID inflation, helped bring Donald Trump back to the White House.
Inflation peaked at 9.1 percent in June 2022, driven by disrupted supply chains, stimulus spending, and global energy prices. Despite recovery efforts, many Americans still felt worse off by the 2024 election.
Trump’s campaign promised to “end inflation” and “make America affordable again,” but some policies could raise prices.
Additional tariffs and mass deportations might increase wages but also production costs. His plans to extend tax cuts could stimulate spending but, if they increase the deficit and federal debt, also drive up interest rates.
Russia is Locking Up Butter as Inflation Crisis Reaches New Heights
by Tim Lister
CTV News
Americans have spent the last few years complaining about inflation. But price rises in Russia are eye-watering by comparison – and just one symptom of an economy that is overheating.
Butter, some meats, and onions are about 25 per cent more expensive than a year ago, according to official data. Some supermarkets have taken to keeping butter in locked cabinets: Russian social media has shown stocks being stolen.
The overall inflation rate is just shy of 10 per cent, much higher than the central bank anticipated.
Inflation is being driven by the rapid rise in wages as the Kremlin pours billions into military industries and sends millions of men to fight in Ukraine. In the middle of a war, companies outside the defence sector can’t compete for workers without paying much higher wages. In turn, they charge higher prices. So the spiral continues.
The Trump Inflation Problem
by John Mauldin
GoldSeek
Two weeks ago, I opened this letter by noting the election uncertainty, once over, would give way to a different uncertainty about what comes next. That’s where we are now.
I fully expected a closer outcome that would take some time to resolve. Instead, we have an undisputed president-elect moving full speed ahead. And what we see publicly is a small part of what’s happening behind the scenes. I am reasonably well informed, and I have a lot of friends who are very well informed, but I don’t know anyone who hasn’t been surprised. And it’s not clear how everything will play out. It gives a whole new meaning to the lyrics: “A wheel in a wheel… Way up in the middle of the air.”
Our uncertainty stems from the simple fact that change is hard. Everything Trump wants to do will face powerful opposing forces, and not always Democrats. Many will be other Republicans, or people who supported his campaign. Some people helped Trump win precisely because they wanted to influence his actions. That’s how politics works. The technical term is “logrolling.”
Ron Baron Thinks Inflation is Higher Than You’ve Been Told
by Al Root
Barron’s
Growth investor Ron Baron believes inflation runs hotter than most people think. He has an idea about what investors should do with that information.
At Friday’s 31st annual Baron Investment Conference at New York City’s Lincoln Center, the firm included a handout “Inflation According to Ron Baron.”
It listed price changes the Octogenarian founder of Baron Capital has experienced over the past 75-plus years for homes, cars, gasoline, college tuition, steaks, and even golf caddy fees. Inflation has averaged roughly 4.5% to 6.5% a year.
Official government statistics peg the inflation rate at about 3.5% over the same span.
Establishment Economists Threaten Trump: Deportations Will Spike Inflation
by Neil Munro
Breitbart.com
Establishment economists are threatening President-elect Donald Trump with a new round of inflation if he restores Americans’ civil right to a secure national border.
But the free market will manage the inflation threat by hiring Americans in place of deported migrants, and by investing in productivity-raising machinery, responded EJ Antoni, an economist at the Heritage Foundation.
“I see no reason why the adjustment would not happen almost immediately,” he told Breitbart News.
In 2017, for example, shortly after Trump first cracked down on migration, meatpacking giant Tysons Food allocated $500 million to begin automating its slaughterhouses and by raising wages many other companies also hired sidelined workers, including ex-convicts, and disabled people.
Voters Blamed Biden and Harris for Rising Costs. Was That Fair? We Asked Economists.
by Daniel de Visé
USA Today
The 2024 election was, to some extent, a referendum on inflation. Voters were mad about higher prices, and they vented their wrath on the Democrats.
Was that fair?
USA TODAY asked economists to ascribe blame for the historic run of inflation, which reached a 40-year peak in mid-2022. Inflation has cooled since then, to an annual rate of 2.6% in October. But prices are higher for good: about 21.4% higher since February 2020, according to an analysis by the personal finance site Bankrate.
Exit polls suggest inflation loomed large in Donald Trump’s triumph at the polls. More than two-thirds of voters said the economy was in bad shape, an ABC News exit poll found. In a CBS News exit poll, three-quarters of voters said inflation was a hardship.
Inflation Ticked Up as Voters Cast Ballots, but Price Growth for Many Basics Holds Steady
Consumer prices inched higher in October as a majority of voters backed a presidential candidate vowing sweeping economic policy changes.
by Rob Wile
NBC News
Price growth ticked higher in October as voters began casting ballots in a presidential election in which economic concerns played a big role.
The consumer price index climbed to 2.6% last month since the same time last year, the Bureau of Labor Statistics reported Wednesday. That’s a bit hotter than the 2.4% annual rate in September, which was the slowest pace since President Joe Biden’s first full month in office.
“Core” inflation, a measure that excludes volatile food and energy prices, held at 3.3% over the 12 months ending in October, the same level notched in the previous month.
The National Debt Just Hit $36 Trillion. Does Trump Have a Plan to Control It?
It would take nearly $8 trillion in budget cuts merely to stabilize the national debt so it does not grow faster than the economy.
by Eric Boehm
Reason.com
In last week’s elections, Americans rejected the status quo in the federal government and asked Republicans to once again take the reins.
On Friday, the Treasury Department issued another reminder about the cost of doing nothing to change course. The national debt hit $36 trillion—less than four months after surpassing the $35 trillion mark.
Evenly divided, that means every American is now six figures in the red, thanks to the decisions made in Washington, D.C., over the past few decades. The trajectory ahead looks no better. The federal government is on pace to run multitrillion-dollar deficits for the foreseeable future—and that’s the rosy scenario, which assumes no recessions, wars, pandemics, and the like. Measured against the size of the U.S. economy, the debt is approaching the record high set in the final year of World War II. The rising debt means higher annual interest payments that will complicate the federal budget, likely require higher taxes, and make everyone poorer.