A Look at Rising Prices

This was obviously a “risk-off” week, evidenced by declining stock and bond prices while commodities headed higher as measured by the Rogers Index, largely because of rising energy prices. Crude oil gained 9% during the week, which leads me to the topic of inflation. Based on Chairman Powell’s “disinflation” remarks, the markets were starting price in victory over inflation, which they thought would lead to lower rates and happy times again in the tech sector. But with the Ukraine war about to escalate once again during the cold months in Europe, the volatile part of the CPI is likely to rise again. The recent decline in food and energy prices which comprise 1/3 of the CPI was responsible for the recent moderation of consumer prices down to ~ 6.5%. But the 2/3 of the CPI is referred to as the “sticky” portion that is still rising.

A major part of that increase is labor costs. Peter Boockvar pointed out this past week, according to the Atlanta Fed, wage growth is up 6.6% year over year. For perspective, during the 20 years leading into COVID, this figure averaged 3.5%. Lower-skilled workers have seen their wages rise 6.6%, which is more than double the 20-year average of 2.9%. Wage growth may be plateauing, but at a pace well above the pre-Covid average. Combine this with higher interest rates and it’s not hard to imagine how corporate profit margins won’t be squeezed considerably. 

Getting back to the topic of inflation, the two tweets from Lyn Alden last week were an eye opener for me:

From 2007 to 2011 the net worth of the bottom 50% of the population fell from $1.5 trillion to $260 billion. But from 2019 to 2022, the net worth of the bottom 50% of the population increased from $2.1 trillion to $4.5 trillion, or 114%.

No doubt some of that has come from the huge money-printing handouts from both the Trump and Biden administrations, sharp housing price gains, and real wage growth during the low-inflation Trump years. So, it would seem that lower-income Americans have made a lot of progress from the lows of the Obama Administration—making a lot of progress, though of course much of that net worth growth is in housing prices.

But now look at Lyn’s chart on the far right. From 2007 to 2011 the net worth of the top 1% of the population declined from $19.5 trillion to $15 trillion at the lowest point, or a 23% reduction. But from 2019 to 2022, the net worth of the top 1% increased from $33.7 trillion to $45 trillion, or a 33% gain. But forget percentages and fathom the enormous wealth transfer from lower-income groups to those closest to the feeding troughs of government. As Lyn points out, the top 1% has more than 10 times the amount of wealth that the bottom 50% of the population has! Now if we lived in an honest capitalist system in which citizens could choose sound money like gold or silver and government kept its cotton-picking hands out of our lives, and we had this kind of wealth disparity, I would have no problem with it. But this is immoral, because a fiat money system enables a clandestine theft to take place that not one in a million citizens understands. And under the Biden Administration, real wages are in decline, which has led to workers having to take two jobs to make ends meet and credit card borrowings have now hit a new high. So, forget all this happy talk about full employment! John Rubino wrote an article on Substack last week warning of growing cash shortages that are bound to lead to a decline in corporate top line growth even as labor costs are still on the rise.