Here’s the nub that economists and the media overlook when discussing inflation: even though year-over-year inflation is decreasing, consumers are still intensely feeling the pinch.
Why? Prices have risen by nearly 14% in the past two years, a relatively short period, while earnings have not kept pace. Consumers are still adjusting to the new reality, and measuring inflation year-over-year fails to capture consumers’ pain.
Meanwhile, President Biden is in another world. He said he took no responsibility for the ongoing inflation in the country when he highlighted the strong January jobs report early this month.
“Do you take any blame for inflation?” a reporter asked.
“No,” Biden responded.
Biden does not want you to know that prices increased by 13.7% under his watch between February 2021 and January 2023.
The President reinforced his claim last week in his State of the Union Address: “We have more to do, but here at home, inflation is coming down. Here at home, gas prices are down $1.50 a gallon since their peak. Food inflation is coming down. Inflation has fallen every month for the last six months while take home pay has gone up.”
Sorry, but bad news came on Tuesday to negate Biden’s SOTU claim. The Labor Department reported that inflation edged up by 0.5% in January 2023 as rising shelter, gas and fuel prices took their toll on consumers.
The Consumer Price Index (CPI) released by the government on Tuesday showed a 6.4% year-over-year increase in prices from January 2022 to January 2023, edging down from a rate of 6.5% in December. The CPI has declined steadily from a 40-year high of 9.1% in June to 6.4% in January.
We developed the TIPP CPI, a metric that uses February 2021, the month after President Biden’s inauguration, as its base and measures the rate of change.
Bidenflation, measured by the TIPP CPI using the same underlying data, stood at 13.7% in January. It was 12.8% in December, 13.2 in November, 13.3% in October, and 12.8% in September.
While we recognize that CPIs are index numbers, for common understanding, when we refer to TIPP CPI and BLS CPI, we mean percent change.
All TIPP CPI measures are anchored to the base month of February 2021, making it exclusive to the economy under President Biden’s watch. Please note that we use the relevant Bureau of Labor Statistics (BLS) underlying data but recalibrate it to arrive at the TIPP CPI.
Significant inflation had already set in by the middle of 2021. In December 2021, CPI inflation was 7.0 percent. The official CPI year-over-year increases will compare prices to already inflated bases in the coming months. The year-over-year calculation may moderate the statistics, but you will still feel the pinch of inflation.
TIPP CPI vs. BLS CPI
The following four charts present details about the new metric.
The official year-over-year CPI increase reported by BLS is 6.4% for January 2023. Compare this to the TIPP CPI of 13.7%, a 7.3-point difference. Prices have increased by 13.7% since President Biden took office.
Food prices increased by 17.6% under President Biden’s watch compared to only 10.1% as per BLS CPI, a difference of 7.5 points.
Energy prices increased 32.8% per TIPP CPI compared to 8.7% according to BLS CPI, a difference of 24.1 points.
The Core CPI is the price increase for all items, excluding food and energy. The Core TIPP CPI was 11.6% compared to 5.6% BLS CPI in the year-over-year measure, a 6.0-point difference.
Further, gasoline prices have increased by 33.0% since President Biden took office. However, the BLS CPI shows that gasoline price has risen by 1.50%, a difference of 31.5 points.
Used car prices have risen by 23.7% during President Biden’s term. The BLS CPI shows that the prices have dropped by 11.6%, a difference of 35.3 points.
Inflation for air tickets under President Biden is 34.2% compared to the BLS CPI finding of 25.6%.
Americans’ Concerns
The latest Investor’s Business Daily/TIPP Poll, completed earlier this month, shows that nine in ten (89%) of survey respondents are concerned about inflation. Throughout the past year, inflation concerns have stayed above 80%. The share of “very concerned” has been over 50% for twelve consecutive months.
Nearly one-half (48%) say their wages have not kept pace with inflation. Only one in four (27%) say their income has kept pace with inflation. This statistic hovered in the low twenties for most of the last year. The positive change here may denote the start of a new trend, but it is too early to tell.
As a result of inflation, Americans are cutting back on household spending.
Most Americans are spending less. They are cutting back on purchasing big-ticket items (76%), eating out (76%), entertainment (75%), holiday/vacation travel (74%), and memberships/subscriptions (67%).
Many (60%) are cutting back on even good causes such as charity giving. The high gasoline prices forced 59% to cut back on local driving. Nearly three out of every five (57%) households spend less on groceries.
Inflation Direction
The chart below compares the 12-month average of monthly changes against the 6-month and the 3-month averages. We also show the reading for December 2022.
The 12-month average considers 12 data points and presents a long-term reference, while the six-month and three-month averages consider recent data points.
To better understand, compare the three-month average to January 2023 data. For All Items, the three-month average was 0.27% vs. 0.5 in January 2023. It is increasing, and hence it is not good.
Similarly, for Energy, the rate is decreasing. The increase in January 2023 (2.00%) exceeded the three-moving average of -0.83, indicating a worsening situation.
The January reading for Food matched the 3-month average of 0.5%. There is no further deterioration.
Though the trend is generally down for All Items Less Food And Energy, the January reading of 0.40% was higher than the three-month average of 0.37%, a cause for some concern.
Treasury yields rose on Tuesday. With an inverted yield curve, short-term U.S. treasuries are paying higher interest rates than long-term U.S. treasuries:
- 4.812% for the 3-month Treasury bill
- 5.033% for the 6-month Treasury bill
- 4.591% for the 2-year Treasury
- 3.726% for the 10-year bond
- 3.768% for the 30-year bond
The inverted yield curve is a leading indicator of lower inflation but also a leading indicator of recession.
Most Americans (53%) believe the economy is in a recession, and another 56% think the economy is not improving. Whatever the President may say, Americans know they are not out of the woods yet.
To access the TIPP CPI readings each month, you can visit tippinsights.com. We’ll publish the TIPP CPI and our analysis in the days following the Bureau of Labor Statistics (BLS) report. The upcoming release of TIPP CPI is on March 15, 2023. We’ll also post a spreadsheet in our store for free download.
Hey, want to dig deeper? Download data from our store for free!
Want to understand better? We recently wrote an explainer that sixth graders can understand. Everyone can benefit from it. Milton Friedman’s Priceless Lessons On Inflation
Republished with permission from TIPP Insights
