Inflation, Retail Sales, & More Inflation

Week in Review: September 12-16

Inflation won’t go away, and interest rates are on the rise (as is the Ukrainian military). Let’s get to it.

Monday

Inflation Expectations

According to the NY Fed’s Survey of Consumer Expectations, Americans’ inflation expectations plummeted in August. The one-year ahead expected rate of inflation is now at its lowest level since October 2021. The three-year ahead expected rate of inflation fell to its lowest level since November 2020. Respondents now expect gas prices to be virtually flat over the next year, though the median prediction for rent is a 9.6% increase.

I suspect that the shift in inflation expectations has much to do with a pronounced dip in gasoline prices. That is a very visible price. But within the course of just about 24 hours, those expectations likely changed, because after Monday comes . . .

Tuesday

NFIB Small Business Optimism Index

This measure of small business sentiment increased 1.9 points in August, but remains well below average. Optimism is at its highest level since February, but that’s still pretty low. On net, small business owners expect sales to decline and their prices to rise. A big part of this dour outlook emerges from real and perceived worker shortages, which have induced most small business owners to raise wages in an effort to attract and retain workers. Compensation costs continue to rise rapidly in America in the context of two job openings for each unemployed person. That’s why inflation won’t dissipate as quickly as many would have you believe.

Income in the United States 2021

This is an annual Census Bureau report that quantifies things like poverty and inequality. There’s a lot of data in this one, and we might do a larger post on it later. For now, we’ll look at a few high level takeaways.

Income inequality increased and is at its highest level since at least 1967 (according to the Gini index). While that’s not great, the female-to-male earnings ratio rose to 83.7%, the highest level ever, which is great (but let’s face it, more so for women than men, right? I’m trying to sound woke here, but I’m probably failing). The share of families living in poverty inched higher in 2021 (from 8.7% to 8.8%) but remains at virtually its lowest level since 1959; only 2019 and 2020 were lower.

Consumer Price Index (CPI)