Tangle - The August inflation report.

Episode Date: September 15, 2022

We're covering the latest inflation news. Plus, some reader feedback, a preview of tomorrow's subscribers-only newsletter, and a question about immigration judges.A reminder of the Fed's role in inflation here.You can read today's podcast here, today’s “Under the Radar” story here, and today’s “Have a nice day” story here.Today’s clickables: Quick hits (03:00), Today’s story (03:58), Right’s take (07:12), Left’s take (11:48), Isaac’s take (16:30), Listener question (18:50), Under the Radar (21:10), Numbers (21:58), Have a nice day (22:34)You can subscribe to Tangle by clicking here or drop something in our tip jar by clicking here.Our podcast is written by Isaac Saul and produced by Trevor Eichhorn. Music for the podcast was produced by Diet 75.Our newsletter is edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle’s social media manager Magdalena Bokowa, who also created our logo.--- Send in a voice message: https://podcasters.spotify.com/pod/show/tanglenews/message Hosted on Acast. See acast.com/privacy for more information.

Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is Chinatown is streaming November 19th, only on Disney+. yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages six months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at flucellvax.ca.

From executive producer Isaac Saul, this is Tangle. Good morning, good afternoon, and good evening, and welcome to the Tangle Podcast, the place where you get views from across the political spectrum, some independent thinking without all that hysterical nonsense you find everywhere else. I'm your host, Isaac Sull, and on today's episode, we're going to be talking about inflation. Yes, again, inflation. We'll probably keep doing this every time we get some new numbers and reports on it because I think it's pretty important. Before we jump in, though, a couple of quick notes. First of all, in tomorrow's subscribers only edition, I'm going to be writing a personal piece about some of what I'm seeing in

American culture and the political world right now, namely what I'm noticing about the assumptions we seem to be making about everybody around us. It's a piece that's been percolating in my brain for a little bit. As I mentioned, you know, down the road, I think we are going to be thinking about ways to make these Friday editions accessible via the podcast. But for now, you can still only get them if you subscribe. So please consider going to readtangle.com slash membership and becoming a member and you will get Friday editions in the newsletter. I also want to share some reader feedback, some listener feedback. This is something I'm going to try to do more of again. There was a spate where I did this basically

every day and I miss doing it. So I'm going to try and start including these reader feedbacks because I think they're really important. This one is from Dimitri, a Soviet Jewish immigrant who was born in the USSR and now lives in New York City, and he wrote in about my take on Ukraine. This is what he said. Isaac, strong disagree on your take. Ukraine gets to decide this conflict's endgame, not the US. And if any Russian troops are left on Ukrainian soil, including Crimea, it will only serve as a staging ground for yet another conflict once Russia regroups and rearms.

The only solution, and fastest path to peace, is military support for Ukraine and a complete Russian route. Anything short of that will embolden Putin. The pundits in America have been wrong about Ukraine's capacity to withstand Russian aggression from day one, and anyone supporting a peace treaty or negotiations now is unfortunately supporting a freezing of the conflict and extending an unnecessary lifeline to an otherwise floundering Putin regime on the brink of collapse. Instead, we need to be preparing for a political near future in which Ukraine is the undisputed victor in this conflict and Russia likely undergoes a regime change. See this Atlantic article titled It's Time to

Prepare for Ukrainian Victory. That's from Dimitri in New York. Good piece of feedback, Dimitri. You got me thinking. Thank you. All right. With the reader feedback out of the way, we'll jump in with some quick hits. First up, the White House has announced that a deal between freight rail unions and their rail firms was reached, averting a potentially crippling strike. Number two, the U.S. said it will release $3.5 billion in frozen Afghan central bank reserves to the Afghan fund,

hoping the money will reach the Afghan people without being passed through the Taliban. Number three, Florida Governor Ron DeSantis helped fund 50 migrants who were flown to Martha's Vineyard in Massachusetts, mimicking an effort led by Texas Governor Greg Abbott. 4. A judge unsealed new documents related to the search of Mar-a-Lago, which shows the Justice Department sought any and all surveillance records, videos, images, photographs from internal cameras at the residence. 5. Armenia and Azerbaijan agreed to a ceasefire to end fighting that killed close to 100 combatants in the worst breakout of violence of the decades-long conflict since 2020. On Tuesday, the latest numbers on inflation were released by the Bureau of Labor Statistics.

A reminder, inflation is measured by the Consumer Price Index, the CPI, which is designed by the Bureau of Labor Statistics to measure price fluctuations for urban buyers who represent the vast majority of Americans. The CPI tracks 80,000 items in a fixed basket of goods and services, representing everything from gasoline to apples to the cost of a doctor's visit. Core CPI is a measurement of prices that does not include more volatile food and energy prices. The CPI rose 8.3% year-over-year in August and was up 0.1% compared to July. Last month, inflation rose 8.5% year-over-year and was flat month-to-month. Analysts had predicted inflation would fall slightly on month-to-month level in August, and the 0.1% rise caused a major market

sell-off and speculation that the Fed would continue to aggressively raise interest rates to cool the economy. The inflation growth was driven mainly by shelter, food, and medical care costs, which all continued to rise sharply. The food index is now up 11.4% year-over-year, the highest increase since 1979. However, gas prices and energy both plummeted again, keeping the total year-over-year inflation number steady and the month-over-month inflation number nearly flat. Core CPI, which is a measure of inflation without more volatile food and energy prices, rose 0.6% month-over-month and was up 6.3% year- year over year. Core CPI is a critical metric for the Fed, which looks to it while determining whether to continue to raise interest rates. The Fed's goal

in raising interest rates, the cost of borrowing money, is to slow spending across the economy and thus bring down demand and prices. We have a reminder on what the Fed does with a link in the episode description. As we've mentioned before, inflation is one of the most important issues to voters, one that impacts real wages and everyday living in a very tangible way. Given that polls reflect that it's still a top concern for voters, we have taken the unusual step of covering it repeatedly, nearly once a month since it became a national story. You can find our previous coverage also with a link in today's episode description.

So now we're going to hear some reactions from the left and the right on the latest report, and then my take. First up, we'll start with what the right is saying. The right is discouraged by the numbers, saying inflation is persistent and Biden's policies aren't helping. Some pointed out the immediate shock to the stock markets, a worrisome sign that investors were expecting better numbers. Others called out the Biden administration for continuing to pass spending bills in the midst of historic inflation. In the Washington Post, Henry Olson said Democrats cannot wish inflation away. Don't let the fact that overall prices rose from July to August by only 0.1% fool you, Olson wrote. That slow one-month rise, like July's 0% rise, was caused almost exclusively

by declining prices at the gas pump. Food, shelter, and most other items in the Consumer Price Index continued to go up. Food consumed at home, for example, has now increased by 13.5% over the past year, which the Labor Department says is the highest yearly hike since March of 1979. So the money Americans save when filling their tanks simply goes out the door to pay for the food on their tables. That means Federal Reserve Chair Jerome H. Powell won't take his foot off the monetary break when the Fed's governing board meets next week. Another 75-basis-point interest rate hike is likely, and another one is probably in store for when the Fed next meets right before Election Day, Olson added. That's what needs to happen.

Interest rate hikes always depress economic activity by making spending and borrowing more expensive. This, in turn, reduces inflationary pressures, slowing price increases to a manageable level. It's not pretty or painless, but the Fed's medicine always brings the inflation fever under control. The Wall Street Journal said investors got another jolt. Tuesday's report on the Consumer Price Index for August showed inflation has remained high and sticky and markets promptly fell out of bed. And we mean from the top bunk, the board wrote. The 3.94% tumble in the Dow Jones Industrial Average was the worst day since 2020, and the declines in the S&P 500 and NASDAQ were

worse. Investors apparently had believed the hopeful chatter that inflation was headed downward and that the Federal Reserve wouldn't need to raise interest rates so high as to court a recession. Investing lessons of the week, never trust a politician. Consumer prices overall rose 0.1% in August after being flat in July, but the decline was almost entirely the result of falling energy prices. Gasoline fell 10.6% and fuel oil 5.9% in the month. That was a happy respite from the spring when gasoline prices averaged more than $5 a gallon nationwide, but prices at the pump are still up 25.6% in the last 12 months and still average $3.71 a gallon, they said. The larger problem is that

the energy declines weren't enough to offset price increases across nearly everything else. The 12-month inflation rate in August fell only to 8.3%, down from July's 8.5%, but higher than the 8% to 8.1% that economists had expected. The Washington Times editorial board said if the damage Biden has brought to the U.S. economic doorstep wasn't obvious before, it is now. Mr. Biden's decision in 2021 to pour trillions of pandemic recovery dollars into a resilient economy has pushed inflation to a 40-year high from where it has barely budged. Even as the Federal Reserve jacks up interest rates to tamp down the brunt of inflation, the president continues to multiply the economy-flattening force.

The August figures demonstrate the Fed's four previous rate hikes this year have had little effect thus far. In callous disregard for the damning impact of his big government spending, Mr. Biden and his fellow Democrats saluted one another on the White House lawn Tuesday, their occasion for celebration, the passage of his so-called Inflation Reduction Act. Authorizing $430 billion in new spending, the bill's effect portends the opposite of its title. The embarrassing spectacle of their partying while the stock market tanked may explain why Democratic Speaker Nancy Pelosi was forced to beg the audience to applaud her ode to the president's extraordinary leadership, they wrote. It would not be senseless to tremble at the prospect of undergoing the sort of economic

hardship that wracked the nation four decades ago when, for example, mortgage rates crested at 18.45% in 1981, the highest ever recorded in the land of the free. And, in fact, voters believe by a 36% to 12% margin that the Inflation Reduction Act actually will worsen inflation, according to a recent Economist YouGov poll. Alright, that is it for the rightist saying, which brings us to what the left is saying. All right, that is it for the rightist saying, which brings us to what the left is saying. The left is discouraged by the report and divided on how to proceed. Some call on the Fed to shock the system with a major rate hike, while others advise against it.

Some point to corporate greed as the cause of rising prices. The Economist said the Federal Reserve must go big, and the odds of avoiding a recession look woefully long. Now the dream has been dashed, they said. Figures published on September 13th show that the pace of underlying inflation in August was fast and furious. Stock markets fell by the most since the early months of the pandemic, the price of junk bonds dropped, and short-term treasury yields spiked. America still has an inflation problem. To fix it, the Federal Reserve must go big. The good news is that America has been spared the worst of the gas crisis that is wreaking

havoc on Europe. As Vladimir Putin has turned off the taps, inflation in some places has crossed into double digits. America does not rely on Russian energy. Its inflation rate peaked at 9.1% in June and fell to 8.3% in August as oil prices eased. Strip out volatile food and energy prices, though, and underlying core inflation is still roaring, they said. It is tempting to sift through the components of the inflation basket in an endeavor to find signs of cooling. Yet, when underlying inflation has been this high for this long, the simplest explanation is the most obvious, no matter what happens to individual components. The economy is still overheating. The effects of a generous fiscal stimulus, which stoked demand during the pandemic, linger today. Rather than continuing the cycle of

tardiness and surprises, the Fed should act in bigger increments by bringing forward to this year the interest rate rises it planned for 2023. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is nearly double the historic average of 52,000 cases. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages six months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed.

Learn more at FluCellVax.ca. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. In Bloomberg, Robert Burgess said the Fed should avoid a 1% interest rate hike. If the Consumer Price Index report for August that showed inflation remains much hotter than

forecast was not enough of a shocker, then talk that the Federal Reserve needs to raise interest rates in even bigger chunks starting with its meeting next week surely is, Burgess said. The idea that the central bank must lift its target for the overnight rate between banks by 100 basis points, something it hasn't done since the 1980s, after increasing it by 75 basis points in both June and July, is not some fringe notion. Money market traders are pricing in a not insignificant 33% chance that it will happen. The thinking is that the Fed needs to get radical if it truly wants to get control of inflation, which rose 8.3% in August from a year earlier. There are two primary reasons

an increase of such magnitude would be a bad idea. The first and most obvious is that it would signal the Fed is in panic mode, which is not a good look for any central bank, let alone the most important one in the world. Risk premiums might blow out to compensate traders for the heightened risk of uncertainty around monetary policy. That would upend credit markets the lifeblood of the financial system, he said. The second reason the Fed might not want to get too aggressive is that it would perhaps make financing too expensive for real estate developers when a lack of supply is causing rents to soar. Shelter costs, which posted their biggest monthly gain since 1991, were a big factor in pushing up core CPI by 0.6% in August from July, double the forecast. Shelter costs are the largest component of CPI, accounting for about a third of the measure. In Newsweek, Robert Reich said the war on inflation is about to get ugly.

Researchers at the International Monetary Fund are now saying that the unemployment rate may need to reach as high as 7.5%, double its current level, to end the country's outbreak of high inflation. This would entail job losses for about 6 million people. Who will bear this pain? Not corporate executives. Not Wall Street. Not big investors. Not the upper middle class, Reich said. The draftees into the war on inflation will be who they already are, lower wage workers. As the economy cools due to interest rate hikes, they will be the first to be fired as the economy plunges. They will also be the last to be hired. The Fed is obsessing about a wage price spiral, wage gains pushing up prices. What it should be worried about is a profit price spiral. Wages are going

nowhere, but profits have been soaring, he said. In the second quarter of this year, U.S. companies raked in profits that were the highest on record, or close to levels not seen in over half a century. As a share of GDP, U.S. corporate profits in the second quarter rose to 12.25%, their highest level since 1950. So there you have it. Profits are up and wages are down. So what's pushing up prices? Profits. Wages are lagging behind inflation. Most workers' paychecks are shrinking in terms of purchasing power. All right, that is it for what the right and the left are saying, which brings us to my take. This one stung. I'm not going to lie. In last month's write-up on inflation,

I struck some notes of hope and some notes of skepticism. The hope was that we'd finally got some relief on energy, and perhaps we'd see this translate into other sectors of the economy. The skepticism was that core inflation metrics still looked bad, and perhaps we'd see this translate into other sectors of the economy. The skepticism was that core inflation metrics still looked bad, and food shelter prices were still rising. All of us, I said, should be rooting for those energy prices to keep falling, and to finally see some relief on everything else. The biggest hope was that this was the beginning of a trend, where month-over-month inflation cooled. Instead, though, it looks like core CPI is continuing to rise, and food and shelter prices have showed no signs of falling. The good news for consumers is all

tied to the energy sector, and we should be glad we're not relying on Russia for oil and gas. The bad news is basically everything else. It isn't just that prices are still rising across most sectors, it's that they are rising after several rate hikes and despite so much focus on getting them down. Previously, I wrote about how convincing I found arguments like Robert Reich's on corporate greed. Then I wrote why I changed my mind, namely by reading arguments like the ones posted by Noah Smith in his newsletter and Catherine Rample in her Washington Post column that exposed the fallacy of the quote-unquote greedflation takes. The top-level retort to claims that corporate greed is causing inflation is that corporate greed is constant,

and inflation is not. You can't rein in inflation by trying to convince corporations to want to profit less. Profits are rising, yes, because prices are rising, and because customers are flush with cash. These are all conditions we'd expect in an inflationary time period. Anyway, I don't know what the answer is. I'm hoping smarter people than me do, but it seems increasingly likely that the Fed is either going to have to shock the system with a large unexpected rate hike, or it's going to have to slowly grind the economy to a halt with continued incremental rate hikes. Historically speaking, interest rates still aren't that high, and the Fed is probably hoping that falling energy costs are still going to bleed into other sectors.

Either way, the soft landing outcome of no recession and cooling inflation does, unfortunately, look less and less likely by the day. Alright, that is it for my take, which brings us to your questions answered. This one is from Mark in Niles, Illinois. Mark said, I have long thought the answer, or at least the first and most obvious step to address the border issue, is to have more judges in courts for hearings. I know this is your point of view. So I ask, why do you think this seemingly simple and obvious step has not been taken by any of the administrations over the years? Oh man, this is a good question. In January 2021, I interviewed Alex Norasta from the Cato Institute about immigration. Alex has a very pro-immigration view from an economic perspective in that he emphasizes the benefits of making legal

immigration more accessible. In that interview, I asked Alex about a piece of a Biden administration legislation that would increase the number of judges, and I expressed my support for that policy, and I said, you know, what do you think? And the first thing he said to me was, so I'm torn on that. It depends entirely upon the policies that the judges are actually enforcing. So I think that's basically the whole thing in a nutshell. Having a ton of immigration judges is a great idea if you think your policies are going to be enforced. If you want migrants coming here to work and asylum seekers to be processed quickly, granted legal status and sent to work or granted asylum safely and whatever, then yes, having

thousands of judges to handle that work under a sympathetic administration like Biden's is great. But what happens if Trump or DeSantis wins in 2024? Then all of a sudden there's an army of judges enforcing new federal policies to expedite deportations and rejections, if you assume those candidates would restrict immigration, which I think it's obvious they would. So it's kind of this catch-22. Norasta argued to me explicitly that, quote, the administrative inefficiency under Trump was a blessing in disguise because the backlog helped, quote, in the sense that people who were going to get their claims denied and then were going to be removed from the United States or deported to the United States weren't. Aside from that logic, I honestly don't have a great answer for you. It's very disappointing.

I think it gives credence to the cynical notion that the border crisis benefits both parties, so they don't have much incentive to solve it. Alright, that's it for your questions answered, which brings us to Under the Radar. A sweeping New York Times investigation has found that 97 lawmakers or their family members were trading financial assets in industries that could be affected by the lawmakers' committee work. From 2019 to 2021, 183 current senators and representatives reported a trade of a stock or financial asset by themselves or a family member. Over half of them sat on congressional committees that could give them insight into the companies

whose shares they were reportedly buying and selling. The New York Times has the story, and there's a link to it in today's podcast description. Next up is the numbers section. The average price of a gallon of gasoline in the US today is now $3.69. The average price of a gallon of gasoline in the US a month ago was $3.95. The average price of a gallon of gasoline in the US a year ago was $3.18. The rise in medical care prices in the last month was 0.8%. The rise in medical care prices in the last year was 5.6%. The rise in medical care prices in the last month was 0.8%. The rise in medical care prices in the last year was 5.6%. The rise in shelter costs in the last month was 0.7%. And the rise in shelter costs in the past year was 6.2%.

Finally, the rough fraction of CPI that shelter costs account for is one third. All right, and last but not least, our have a nice day section. I really like this one. Brayden Nadeau is just 12 years old, but he's already helping feed his small town. The Minot, Maine resident, has fallen in love with the family tradition of farming, and now he's helping run his grandfather's 25-acre farm. Braden first helped his grandfather steer a John Deere tractor when he was just two. By the time he was three, he was helping feed the hogs and chickens. And at five, he told his kindergarten teacher he wanted to be a farmer. On his own initiative, Braden has begun planting, tending to, and harvesting produce from the farm two years ago.

And now Braden's vegetable stand is selling produce to the community. The Washington Post has this awesome story and there's a link to it in today's episode description. All right, everybody, that is it for the podcast. Like I said at the top, we will not be back here tomorrow, but if you want to hear from us in the newsletter, you can become a Tangle member, readtangle.com slash membership. Also, please do remember, we are trying to ramp up for the midterms right now and get some people on board. So if you're not going to subscribe, the least you can do is spread the word about Tangle. And if you send me a screenshot at Isaac at readtangle.com of you sharing Tangle on social or in a group chat, I'll enter your name into a drawing for a merchandise giveaway,

which we are going to do on Sunday night. All right, everybody name into a drawing for a merchandise giveaway, which we are going to do on Sunday night. All right, everybody, that is it for the pod. We'll be back here on Monday. Have a good one. Peace. is written by me, Isaac Saul, and edited and produced by Trevor Eichhorn. Our script is edited by Ari Weitzman, Sean Brady, and Bailey Saul. Shout out to our interns, Audrey Moorhead and Watkins Kelly, and our social media manager, Magdalena Bokova, who designed our logo. Music for the podcast was produced by Diet75. For more from Tangle, subscribe to our newsletter or check out our website at www.readtangle.com. We'll be right back. begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported

across Canada, which is nearly double the historic average of 52,000 cases. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages six months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at flucellvax.ca.