Here’s what economists and the media miss when they talk about inflation: even though inflation is going down year over year, Americans continue to feel the pinch.
Why? Prices have increased by about 14% in the last two years, which is a short time, but wages have not kept up. Consumers are still getting used to the new reality, and comparing inflation from year to year doesn’t show how hard it is for them.
The Consumer Price Index (CPI) released by the government on Tuesday showed a 6.0% year-over-year increase in prices from February 2022 to February 2023, edging down from a rate of 6.4% in January. The CPI has declined steadily from a 40-year high of 9.1% in June to 6.0% in February.
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 14.4% in February. It was 13.7% in January, 12.8% in December, 13.2% in November, and 13.3% in October.
While we recognize that CPIs are index numbers, for common understanding, we mean percent change when we refer to TIPP CPI and BLS CPI.
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 February 2022, CPI inflation was 7.9 percent. The official CPI year-over-year increases will compare prices to 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 annual CPI increase reported by BLS is 6.0% for February 2023. Compare this to the TIPP CPI of 14.4%, an 8.3-point difference. Prices have increased by 14.4% since President Biden took office.
Food prices increased by 18.1% under President Biden’s watch compared to only 9.5% as per BLS CPI, a difference of 8.6 points.
Energy prices increased 32.1% per TIPP CPI compared to 5.2% according to BLS CPI, a difference of 26.9 points.
The Core CPI is the price increase for all items, excluding food and energy. The Core TIPP CPI was 12.3% compared to 5.5% BLS CPI in the year-over-year measure, a 6.8-point difference.
Further, gasoline prices have increased by 35.2% since President Biden took office. However, the BLS CPI shows that gasoline price has improved by 2.0%, a difference of 37.2 points.
Used car prices have risen by 22.0% during President Biden’s term. The BLS CPI shows that the prices have dropped by 13.6%, a difference of 35.6 points.
Inflation for air tickets under President Biden is 42.6% compared to the BLS CPI finding of 26.5%, a difference of 16.1 points.
Americans’ Concerns
The latest Investor’s Business Daily/TIPP Poll, completed earlier this month, shows that nine in ten (88%) 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.
Over two in five (44%) say their wages have not kept pace with inflation. Only 30% say their income has kept pace with inflation. This statistic hovered in the low twenties for most of the last year. The positive change in the recent two months may denote the start of a new trend.
As a result of inflation, Americans are cutting back on household spending.
Most Americans are spending less. They are cutting back on entertainment (77%), eating out (76%), purchasing big-ticket items (76%), holiday/vacation travel (75%), and memberships/subscriptions (67%).
Many (62%) are cutting back on even good causes such as charity giving. Nearly three out of every five (59%) households spend less on groceries. The high gasoline prices forced 58% to cut back on local driving.
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 February 2023.
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 February 2023 data. For “all items,” the three-month average was 0.33% vs. 0.4% in February 2023. It is increasing, and hence it is not good.
The February reading for Food is lower than the 3-month average of 0.43%. It shows a modest improvement. Also, notice the downward trend.
Similarly, for Energy, the rate is decreasing. The decrease in February 2023 (-0.60%) exceeded the three-month moving average of -0.57%, indicating improvement.
For “all items less food and energy,” the February reading of 0.50% is higher than the three-month average of 0.43%, indicating deterioration.
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:
- 4.992% for the 3-month Treasury bill
- 5.028% for the 6-month Treasury bill
- 4.298% for the 2-year Treasury
- 3.666% for the 10-year
- 3.774% for the 30-year
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 57% think the economy is not improving.
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 April 13, 2023. We’ll also post a spreadsheet in our store for free download.
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Want to understand inflation better? We recently wrote an explainer that sixth graders could understand. Everyone can benefit from it. Milton Friedman’s Priceless Lessons On Inflation
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TIPP Takes
Geopolitics And Geoeconomics
#1. Russia Extends Black Sea Grain Agreement By 60 Days – UPI
Russia’s Deputy Foreign Minister Sergey Vershinin announced the extension in a statement, noting there would be preconditions for a future extension.
It will renew on March 18 if neither Russia nor Ukraine objects.
Turkey and the United Nations brokered the Black Sea Initiative last summer to ease the war in Ukraine’s strain on the global food supply. Russia’s decision is a temporary relief as an estimated 23 million tons of grain and other foods have been exported under the agreement so far.
#2. Putin Defends Ukraine War, Claims It’s About ‘Survival’ Of Russian Statehood – WION
Russian President Vladimir Putin’s verbal attack on the West rose to a crescendo for yet another time when he defended the war in Ukraine, saying it is a question of Russia’s very existence as a state.
He said that the Ukraine war is more than just a geopolitical task. “So, for us, this is not a geopolitical task, but a task of the survival of Russian statehood, creating conditions for the future development of the country and our children,” Putin said in his address to workers at an aviation factory in Buryatia, a mountainous Russian republic in eastern Siberia.
#3. Poland May Hand Mig-29 Jet Fighters To Ukraine Within Weeks – A.P.
Polish Prime Minister Mateusz Morawiecki said that his government may hand its Soviet-made MiG-29 fighter jets over to Ukraine “within the next four to six weeks.”
He didn’t clarify whether there was any coalition ready to follow suit.
Poland’s leaders said last week that sending the warplanes would be only done within a larger international coalition. Slovakia has also declared readiness to provide its MiG-29 planes to Kyiv, and the two NATO nations have urged others to join.
Ukraine’s air force is familiar with MiG-29s and could use the planes immediately.
#4. Germany Still ‘Occupied,’ Claims Russia’s Putin – WION
President Putin said Germany’s response to the Nord Stream pipeline explosions shows that it is still “occupied” and unable to act independently after it surrendered at the climax of World War Two.
In an interview, Putin said that the leaders in European countries have been browbeaten into losing their sense of independence and sovereignty.
Putin claimed that the blasts on the Nord Stream gas pipelines were carried out on a “state level” and called the suggestions that it was carried out by an autonomous pro-Ukraine group “complete nonsense.”
#5. China Warns AUKUS Alliance, Says It’s On ‘Path Of Error And Danger’ With Subs Pact – AFP
Chinese foreign ministry spokesman Wang Wenbin accused the three Western allies of inciting an arms race, saying the security deal was “a typical case of Cold War mentality.”
“The latest joint statement from the U.S., UK, and Australia demonstrates that the three countries, for the sake of their own geopolitical interests, completely disregard the concerns of the international communities and are walking further and further down the path of error and danger,” Wang Wenbin said.
Acquiring submarines powered by nuclear reactors puts Australia in an elite club and at the forefront of US-led efforts to push back against Chinese military expansion.
#6. Jiang Yanyong: Whistleblower Doctor Who Exposed China’s SARS Cover-Up Dies – BBC
Jiang Yanyong, a former military surgeon who blew the whistle on the Chinese authority’s cover-up of the 2003 Sars epidemic, died at 91.
The senior doctor had been working in a Beijing hospital in April 2003 when he was alarmed to hear the Chinese health minister telling the public there were only a handful of cases of a new deadly respiratory disease.
He sent a letter exposing the lies in the official narrative to Chinese state broadcasters, who ignored it. But the letter was then leaked to foreign media, who published his account in full.
He endured house arrest at one point for his unwavering outspokenness.
#7. Honduras Says Plans To Open Diplomatic Relations With China – Al Jazeera
Honduras President Xiomara Castro wants her country to open official diplomatic ties with China in a move that will end its official relationship with the self-ruled island of Taiwan.
Taiwan’s Foreign Ministry said it had expressed serious concern to the Honduran government and urged it to consider its decision carefully and not “fall into China’s trap.”
While Xiomara did not mention Taiwan in her tweet, China does not allow countries to maintain formal relations with Taipei if they recognize Beijing.
Analysts said Honduras move was not unexpected given Xiomara’s campaign comments and recent discussions with China about financial assistance.
#8. U.S. Couldn’t Be ‘Honest Broker’ In Saudi-Iran Negotiations, Says Ex-Saudi Intelligence Chief – Middle East Eye
Neither the U.S. nor Europe would have been able to be an “honest broker” and secure a deal between Saudi Arabia and Iran like the one China has helped obtain, former Saudi intelligence chief said.
“China was the one that could pull it off because it has good relations with both of us,” Faisal said in an interview.
The news surprised Washington as officials and members of the Washington establishment scrambled to brush off concerns that U.S. influence was waning.
#9. Nuclear Weapons Use By North Korea Will Mean ‘End Of Regime’: Pentagon Spokesperson – Yonhap
Any use of nuclear weapons by North Korea will end the reclusive regime in Pyongyang, U.S. DOD spokesperson Brig. Gen. Pat Ryder said, amid concerns of a nuclear test by the reclusive country.
The U.S. had warned of such a dire consequence of a nuclear attack by North Korea after Pyongyang enacted a new law that it said would allow pre-emptive use of its nuclear weapons in case of a contingency.
North Korea has since consistently intensified its nuclear rhetoric, with its leader Kim Jong-un calling for “exponential” growth of its nuclear arsenal earlier this year.
#10. Climate Group Criticises Paris Claim That 2024 Olympics Will Reduce Emissions – RFI
Environment experts slam as misleading the claim by organizers of the 2024 Olympics that the Paris Games will be the world’s first climate-positive sporting event.
“We want to show that we can do these Games with half the emissions,” Georgina Grenon, Paris 2024’s director of environmental excellence, said.
But Lindsay Otis Nilles of Carbon Market Watch, “to say that an event has a positive impact on the climate is misleading.” “The event itself generates greenhouse gases which are bad for the climate. The financial support of the organizers for external projects does not change this.”
Republished with permission from TIPP Insights
