Another just published economic indicator predicts inflation could be moderating faster than predicted by most analysts.
The New York Fed’s consumer expectation survey just out reported median one-, three-, and five-year-ahead inflation expectations decreased to 5.2 percent, 3.0 percent, and 2.3 percent, respectively, according to the November Survey of Consumer Expectations. Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—decreased at the short-term and medium-term horizons and is way done over the longer 5-year term.
This should hearten inflation doves, including Treasury Secretary Janet Yellen, who said in a 60 Minutes CBS TV interview that “I believe by the end of next year, you will see much lower inflation, if there’s not an unanticipated shock.”
It looks increasingly like the economy is doing the Federal Reserve’s work in bringing down inflation, as I said recently with gas prices now below pre-pandemic levels, and shipping and raw material costs declining.
But there is still a major roadblock to be considered—record corporate profits, the highest in history as a percentage of Gross Domestic Product (see above graph). And it tells us why producers can raise prices faster than the inflation rate. It reached its high point of 14.8 percent of GDP in July 2021.
More than half of the companies surveyed by the small business services reviews website Digital.com reported raising prices beyond what was required to offset rising input costs, said Business Insider.
“What’s interesting about our findings is that more than half of respondents say that while they used inflation as a reason for price increases, they expect higher profits as a result,” says Digital.com’s small business expert, Dennis Consorte.
Food prices are now the biggest worry for inflation watchers. The government will release October figures for food and other costs in its Consumer Price Index report Tuesday.
Food prices rose 10.9 percent year-over-year in October’s CPI report. Food at home — grocery store or supermarket purchases — increased by 12.4 percent, ticking down from 13 percent in September, and rose 0.4 percent on the month, the smallest monthly increase in the category since last December.
But several categories rose far more than the overall rate of inflation. Egg prices rose 43 percent year-over-year in October, butter increased by 26.7 percent, and flour and prepared flour mixes were up 24.6 percent. Lettuce prices rose 17.7 percent year-over-year, while bread and milk prices rose by 14.8 percent and 14 percent, respectively.
Let us see if tomorrow’s CPI inflation report continues to indicate inflation declining.
What to do about corporate profits? That’s a long story, a very long story. The Business Insider graph shows it started its record climb in 2009 when recovering from the Great Recession.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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