The December Inflation Shock | The Epoch Times


News Analysis

Not even the Biden administration could spin this one. December’s overall inflation number came in much hotter than expected, worse than any time since the summer of 2013. Quoting the Bureau of Labor Statistics (BLS):

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in December on a seasonally adjusted basis, after rising 0.1 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.4 percent before seasonal adjustment.”

The target is still 2 percent. We are still way over target. For all the world, it does seem as if inflation is already firing back up again even before it ended. This is a major problem, for messaging, for politics, and also for Fed policy.

(Let’s leave without comment the New York Times headline: “Fresh Inflation Data Shows Intact, but Bumpy, Cool-Down.”)

(Data: Federal Reserve Economic Data (FRED), St. Louis Fed; Chart: Jeffrey A. Tucker)
(Data: Federal Reserve Economic Data (FRED), St. Louis Fed; Chart: Jeffrey A. Tucker)
Just the other day, I noted some falling prices in some items. That is technically true but the source is not the BLS. Now we have the official numbers for last month coming in far hotter than anyone predicted. The only thing down in general is vegetables. Everything else is up, with electricity way up. It is much worse than I expected.

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We might ask the question why. In general the answer is the money stock, which is up 40 percent since 2020. This was done to fund stimulus payments at the most massive and sudden spending splurge in the history of Congress. Already, the value of the dollar is down some 20 cents since the lockdowns of 2020.

(Data: Federal Reserve Economic Data (FRED), St. Louis Fed; Chart: Jeffrey A. Tucker)
(Data: Federal Reserve Economic Data (FRED), St. Louis Fed; Chart: Jeffrey A. Tucker)

This is no doubt a direct result of the 40 percent expansion of the money stock. The worst effects of that were mitigated by a dramatic decline in velocity, or the rate at which people spend money. But that has gradually reversed itself, counteracting the Fed’s tightening regime. And now we have a situation in which the Fed has started loosening again just as velocity is rising, thus yielding more inflation, fully three years after the Biden administration assured us that it was all transitory.

(Data: Federal Reserve Economic Data (FRED), St. Louis Fed; Chart: Jeffrey A. Tucker)
(Data: Federal Reserve Economic Data (FRED), St. Louis Fed; Chart: Jeffrey A. Tucker)

These new numbers throw a huge wrench into the Fed’s plans. All accounts suggest that the Fed was planning a major reversal of the tightening regime starting soon, so that it could have a recovery-style effect going into the November elections. That now seems less likely. The Fed will now fear that lowering rates could worsen inflation as we go toward the elections, thus reversing the hope that voters will choose Joe Biden over Donald Trump or whomever is the Republican nominee.

Wonder of wonders, it turns out that the masters at the Fed don’t have it all under control after all. Economic conditions are worsening, and now we have the ultimate Fed trap. If the Fed attempts to engage in countercyclical loosening now, it could cause inflation to rise. That means a serious problem for the Fed. It means that there is truly nothing it can do now.

I guarantee that the hawks at the Fed are triumphant today and that the doves are on the ropes. It would appear that no one really saw these new numbers coming. They are too high to spin as not a problem. They are a major problem and everyone knows it.

The new numbers also confirm the widespread impression that we are being pillaged by Washington, which only fans voter anger. And we know where that ends up. It’s not voting for Joe Biden. Not even the most progressive of blue-state voters like this kind of thing.

You mix growing inflation with the migrant problem—no one really likes it when their nation is sacked—and you have a serious political problem on the horizon.

Just yesterday, the Securities and Exchange Commission approved Bitcoin ETFs—sure it is ten years late but it is something. Now people can buy Bitcoin using retirement money and easily integrate it into their management portfolio. It also gives Bitcoin a kind of legitimacy it previously did not have. It might be a game changer not only for Bitcoin but for cryptos generally. We are going to see lots of money moving in this direction.

The reality of continued inflation intensifies these movements. Also, watch the gold price and don’t count out precious metals generally. We seem to be headed toward harder times. So much for the messaging about the supposed “soft landing.” It certainly does not feel like one. Real wages have been hit yet again, which is the last thing the Biden administration wanted.

We live in an age of expert failure. The big shots at the Fed have long proclaimed themselves to be experts in money management. That claim is now in ruins. Will the Fed itself, even its very existence, become a major political issue? It could. And should.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.


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