The recent jump in the Consumer Price Index (CPI) was no mere blip on the radar.
Prices of imported goods and input costs rose in January at the fastest pace in over a year, while inventories have been either stagnant or declining relative to sales.
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- Inflation Remains Elevated: January CPI Jump Wasn’t a Fluke
- Wage Growth Slowing Down in 2024, Potential Relief on the Horizon
- Goods Prices Reversing Disinflationary Trend, Adding to Inflation Woes
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Inflation Remains Stubbornly High, But Could Income Growth Be Slowing Down?
This suggests that inflationary pressures continue to be a concern.
However, there is some good news that could provide relief.
Underlying inflation in 2024 is expected to be slower than in 2023, even if it continues to rise faster than before the pandemic.
The Wage Growth Conundrum
There is a wage growth issue that needs attention.
The latest comprehensive estimates of actual wages earned in the US show that average and aggregate wage growth slowed considerably in 2024.
This could potentially ease some of the inflationary pressures.
The January personal income figures suggest that the average American received a significant pay increase, with individual income before transfers increasing at a 9% annualized rate.
However, this seems primarily driven by a surge in dividend payouts, which are unlikely to contribute much to consumer spending, a key driver of inflation.
The Troubling Goods Sector
If the latest data is believed, the disinflationary impulse of stable (or falling) prices of manufactured goods may have reversed course, becoming an inflationary force instead.
The CPI showed that core goods prices rose by the most since early 2023 in January.
The Producer Price Index (PPI) organizes prices of goods and services based on their position in the production flow, from raw materials to finished output.
To illustrate, consider the process of manufacturing a new truck: first, mining iron and coal (stage 1) to make steel (stage 2), then forging the chassis (stage 3), before finally assembling the finished vehicle (stage 4).
Before the pandemic, physical input prices did not show a long-term trend, although there was month-to-month volatility, especially for goods in stages 1 and 2.
The pandemic featured a sustained period of rising costs until mid-2022.
Since then, there have been two notable periods of falling prices (mid-2022 and mid-2023), with prices otherwise flat.
However, the past few months look different, with rising prices across most stages.
Stage 3 core goods prices rose in January 2024 by the most since May 2022.
The persistent inflationary pressures and the potential for slowing wage growth have set the stage for an intriguing economic landscape in 2024.
As consumers grapple with the rising cost of living, the possibility of stagnant or declining incomes could dampen spending and ultimately impact economic growth.
Whether policymakers can strike the right balance to cool inflation without stifling the recovery remains to be seen.
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