the money game

Nothing Is Working Against Inflation

Photo: Mark Felix/Bloomberg via Getty Images

Nothing seems to be working when it comes to inflation. The Consumer Price Index fell to 8.2 percent in September, and while the Labor Department’s gauge of price increases backed off from the generational peak of 9.1 percent it reached in June, the overall news isn’t so comforting. Rent, food, and medical costs — things that make up the bulk of people’s spending — are seemingly unaffected by the Federal Reserve’s campaign to cool the economy with higher interest rates. When markets opened, the Dow Jones Industrial Average immediately tanked, falling 500 points. (By the end of the trading day, the index turned around and rose 827 points, its best day in months, partly on optimism that stock prices had hit a bottom). The message here is that the overall affordability of the economy is getting worse and the latest data is flashing a warning that it may not get better soon.

Some of these numbers show just how stubborn inflation is right now: Groceries are 13 percent higher than they were a year ago; eating out is 8.5 percent higher. Energy costs are about 20 percent more than they were last fall, and that’s factoring in the recent fall in oil prices. And there are other data points that almost certainly understate how much less affordable life has gotten during the last year: According to the CPI, shelter costs have risen 6 percent for the year, which flies in the face of more severe increases reported by the likes of Redfin. (This is because of the wonky way that the Labor Department calculates rent, which is on a lag and relies on how much owners estimate they could rent out their space for rather than what people pay to actually live somewhere.)

What matters right now is what the Fed is going to do with this. The available options are grim. The central bank pays the most attention to a subindex that shows the so-called “core” inflation, one that strips out food and energy costs because of their volatility, and this gauge actually rose in September to a 40-year high of 6.6 percent.

This shows two things: First, their method for dealing with inflation — raising the base interest rate from about 0 in March to about 3.25 percent in September — isn’t doing enough. In theory, this is supposed to funnel away money from goods and services toward higher interest payments — essentially sucking those dollars out of the broader economy and spewing them back into banks and other lenders, entities that collect that interest and are tightening the amount of lent money for people and businesses. The other takeaway is that they will almost definitely continue on the path of hiking interest rates, making life increasingly unaffordable for more and more people — and possibly tanking the global economy with it. Minutes released yesterday showed that some central-bank governors believed they may have to pause soon on how fast they’ve been hiking rates, but, if anything, the incessant pace of inflation may point to that being outdated already.

There are some bright spots here: The price of clothes and used cars fell just in time to go shopping for a new fall outfit and buy a ride to go see foliage, I guess. But these are marginal victories. For the rest of the year, things look like they’re going to get more expensive.

OPEC+ is cutting its oil production ahead of the winter season with Saudi Arabia in particular bucking calls from the Biden administration to keep the commodity flowing. Home prices aren’t really moving, in part because there is so little out there on the market. Even Jamie Dimon, the JPMorgan Chase CEO, is saying that there will be a recession sometime early next year. For the rest of us, it might not even feel like much of a difference.

Nothing Is Working Against Inflation