Consumer Inflation in October Doubled From September – 6.2 Percent Inflation Year Over Year – Real Wages Dropped 1.2 Percent For Year

Posted originally on the conservative tree house on November 10, 2021 | Sundance | 239 Comments

Yesterday, data on the wholesale “Producer Prices” was released showing an 8.6 percent increase in prices for final demand products {DATA HERE}.  That is the increase in cost within the system of bringing products to market.

Today, the “Consumer Price” data was released showing a massive 6.2 percent increase in prices {DATA HERE} for goods that are currently available for sale.  The overall rate of inflation is now 6.2% year-over-year.

When you overlay inflation atop wage growth, the Bureau of Labor and Statistics (BLS) report now shows a decrease in “real wages” of 1.6 percent {DATA HERE}, which is the increase in weekly pay minus the additional costs to buy stuff.   The working class is losing ground rapidly.   Things are ugly and they are fixin’ to get uglier.

Before getting to the part where we can explain exactly how much more we can predict to pay for current products in 90 days (yes, that approximation is possible), first lets look at the actual data on the current inflation rate for products we are buying today.  [Table 2] is the easiest reference for category specific review.

Overall, the prices for groceries (food at home) went up 1.1% in October and 5.4% for the year.   However, several products in the supermarket have jumped massively. Beef jumped 1.9% for the month and is 20.1% higher overall.  Bacon went up 2.1% for the month and is now 20.2% higher for the year.  All processed foods increased at a rate about four times higher than fresh unprocessed foods.

Fuel oil went up 12.3% in October and is now 59.1% higher for the year.  Unleaded regular gasoline went up 3.9% in October and is now 51.3% higher for the year. Piped natural gas went up 6.3% for the month and is now 28.1% higher for the year.  Used vehicles are now 26% higher than last year, and new cars went up roughly 10%.  You can scroll down Table-2 to see each category (second and third columns show year and monthly increases).  It’s unnerving to see the scale of inflation while knowing it will get worse.

One kitchen table way to estimate the current inflation that is already in the system but has not shown up in the retail end is to take the wholesale inflation (PPI 8.6%), deduct the current retail inflation (6.2%), and that gives you an estimated aggregate gap of 2.4% between them.  That 2.4% is essentially an inflation lag already in the supply chain at various stages (raw material, intermediate, final).  Bear with me…

The 2.4% difference (8.6 – 6.2) is a lag that will show up in approximately 90 days. The difference between the wholesale inflation and retail/consumer inflation will eventually reach the cash register in higher prices.  The 2.4 difference is also a good way to approximate how high finished processed goods will go.

The difference between the wholesale rate of inflation and retail rate of inflation (as a percentage) is around 28%.  That’s a good generalized way to approximate what the future price will likely be for any given item, call it a widget, in the consumer segment.

• Current widget at $17.00 + 28% gives you an approximate for future widget at $21.76

• Current bread at $4.69 + 28% gives you an approximate for future bread at $6.00

Using this method, you can approximate the upper price likelihood for a heavily processed product.  The more an item needs to be processed, the more hands that touch the product in the processing, the higher the end price will be.  The more an assembly of individual processed parts is needed in order to generate a finished good, the higher the end price will be, etc.  An increase of 28% will be an approximation for the future prices (roughly 90-120 days) of a heavily processed item.

Grocery prices rose 1.1% last month, while the cost of eating out was up 0.8%, the largest monthly gain in 40 years.

MSNBC – Inflation across a broad swath of products that consumers buy every day was even worse than expected in October, hitting its highest point in more than 30 years, the Labor Department reported Wednesday.

The consumer price index, which is a basket of products ranging from gasoline and health care to groceries and rents, rose 6.2% from a year ago, the most since December 1990. That compared with the 5.9% Dow Jones estimate.

On a monthly basis, the CPI increased 0.9% against the 0.6% estimate. (read more)

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