Firstly let me wish readers a Happy Thanksgiving be it for today or for a long weekend. However this year even it cannot avoid the Zeitgeist of 2021.
Enjoying Thanksgiving dinner with family and friends is a priority for many Americans, but paying attention to how the meal will impact the budget is also important. Farm Bureau’s 36th annual survey indicates the average cost of this year’s classic Thanksgiving feast for 10 is $53.31 or less than $6.00 per person. This is a $6.41 or 14% increase from last year’s average of $46.90.
As you can see the Farm Bureau has a go at distraction by quoting a price per head, but the issue here is that it thinks the price is up 14%. So Americans hosting Thanksgiving will be noticing the rise in price. Senator Elizabeth Warren has certainly done so although her response may be parody as it is increasingly hard to tell these days.
Wondering why your Thanksgiving groceries cost more this year? It’s because greedy corporations are charging Americans extra just to keep their stock prices high. This is outrageous.
The Farm Bureau put it rather differently.
“These include dramatic disruptions to the U.S. economy and supply chains over the last 20 months; inflationary pressure throughout the economy; difficulty in predicting demand during the COVID-19 pandemic and high global demand for food, particularly meat,”
The Federal Reserve
I do not know if policymakers are hosting Thanksgiving dinners but their minds will have been on inflation too yesterday.
The PCE price index increased 0.6 percent. Excluding food and energy, the PCE price index increased 0.4 percent.
If they are hosting Thanksgiving it may not be the best time to exclude food and energy from the inflation basket. But the theme here was higher because the headline which had been rising fast enough at 0.4% and 0.5% a month rose by 0.6%. So the pace picked up even more.The annual picture is below.
The PCE price index for October increased 5.0 percent from one year ago, reflecting increases in both goods and services . Energy prices increased 30.2 percent while food prices increased 4.8 percent. Excluding food and energy, the PCE price index for October increased 4.1 percent from one year ago.
For those unaware this is the price and inflation measure the US Federal Reserve targets and as ever the targeted measure gives a lower answer than the alternative which is the CPI. As you can see even using the core measure does not provide an enormous amount of relief as even it us at 4% or above the new higher inflation target.
By adopting average inflation targeting, the Fed is communicating that 2 percent is not a ceiling for inflation and that it may let inflation exceed 2 percent modestly and temporarily to make up for past low inflation. The key aim of this policy shift is anchoring inflation expectations.(Dallas Fed)
As you can see this from August last year has already hit trouble with both the “modestly” and “temporarily” elements.
The detail of the numbers provides no relief at all. Because the one lower area is services at 3.7% and even it has been marching higher as it was 2.4% in March.There may have been some hope from it staying at an annual rate of 3,5% for 3 months in a row but as you have already seen it has gone higher.
In short even those who love to cherry pick the inflation data have a bit of a problem here.
House Prices
The Bank for International Settlements has chimed in today on this area.
In aggregate for the group of AEs, real residential property prices soared by 8.6% year on year in Q2 2021, compared with 3.8% one year ago. Prices rose rapidly in Australia
(+12%) the United States (+11%), Canada (+10%), the United Kingdom (+8%), and less so in Japan (+6%) . House prices continued to move upward at a double digit rate in New Zealand (+24%).
By AE the mean advanced economies and I have highlighted the US. The numbers are not as up to date as others we have seen but they do tell us that even the central bank for central banks cannot avoid mentioning the obvious game. This is to inflate house prices and then to claim it is increased wealth. For some that is true but for first time buyers it is inflationary.
If we look at the bigger picture US policy has been consistently inflationary in this area since the financial crisis.
Among the G20 economies, real prices have risen markedly since 2010 – by 50% to 65% – since 2010 in India, Canada, Germany and the United States.
For newer readers this matters because the inflation numbers targeted ignore house prices preferring to use Imputed Rents which invariably rise more slowly and recently much more slowly.
Government Policy
The US administration thought it had played a blinder appointing former US Federal Reserve Chair Janet Yellen to be Treasury Secretary but it has turned out like this.
February: nothing to worry about.
March: small and manageable.
May: only temporary.
June: could reach 3% but just transitory.
Early October: higher for next several months.
Late October: trillions more in spending will lower prices. ( Charlie Biello)
Earlier this week she told us this.
“I think we do have to be concerned about inflation. It’s reached the levels that concern most Americans who are seeing it and their pocketbook when they go to the store to buy food or to fill up their cars,” said Yellen, who chaired the Fed from 2014 to 2018. ( Reuters )
And
Janet Yellen: Inflation “might” subside by late 2022. ( @Blockworks_ )
The Federal Reserve
Mary Daly of the San Francisco Fed was interviewed by Yahoo Finance and they first kindly summarised the change that has just started.
So you were buying about $120 billion a month in assets, the pace of slowing that down is going to be about by $15 billion per month, which the math would put us stopping that whole asset purchase program by the middle of next year.
That is slightly loose language as he meant adding to the programme as the stock or balance remains.
The reply has attracted attention.
MARY DALY: Well, I certainly see a case to be made for speeding it up. We have two important data points that are going to come in before the next meeting, and will really inform my take, our deliberations, and certainly my thoughts. Those are another report on the labor market — another jobs report — and also another report for the CPI.
You might think we have had quite enough information on inflation and the CPI! That in itself is an interesting swerve because the Fed targets the PCE as I explained earlier. It is almost as if she is getting her excuses in early. But there was more.
And if things continue to do what they’ve been doing, then I would completely support an accelerated pace of tapering.
There has been a response as the US ten-year yield has moved up to 1.64%. This can be looked at in two ways and the other one is to note that compared to the inflation move both the change and the absolute level are minor.
Comment
The essential issue is that the bodies which are supposed to control inflation have in fact exacerbated it. They are not the only factor in play because the lockdowns have created the supply chain issues. I point this out because the narrative of economic policy success avoids the fact that we need to subtract the inflation is has caused. Both the US government and the Federal Reserve have tried denial as a first step and it has gone badly wrong. Also I am sure the government must be reconsidering its hostility to the energy industry.
The other attempts to control recorded inflation by picking the lowest inflation measure and avoiding house prices have become more transparent. The area of inflation measurement is complex but it is also true that all moves have been one-way.
Then we have the monetary response which has been to do nothing and then to reduce the pressure for higher prices by tapering QE. So no interest-rate response at all and now we have promises of 2 or 3 rises next year. That inverts the proper situation because you are supposed to get ahead of events not chase them. Indeed some of the advice from central bankers can be filed under not a little bizarre.
As of the third quarter of 2021, a hearty Thanksgiving dinner serving of turkey costs $1.42. A tofurkey (soybean) dinner serving with the same amount of calories costs $0.66 and provides almost twice as much protein. Keep in mind that this plant-based meal would be almost 3 times larger by weight than the poultry-based meal and may either keep you at the dinner table longer or provide you with more leftovers. ( St.Louis Fed )
Even more bizarrely they then confess they know little about it.
Of course, our calculations here don’t include the time value, energy costs, and additional ingredients required to cook the meals.
Maybe that is the most 2021 theme of all.