The economic news in 2023 was almost miraculously good. The U.S. economy defied not only widespread recession predictions but also claims that only a significant increase in unemployment could curb inflation. Rather, what we saw was a combination of strong growth, unemployment near 50-year lows and falling inflation. But last week, the Bureau of Labor Statistics reported that both the Consumer Price Index (CPI) and the Producer Price Index (PPI) rose 0.3% in January, more than analysts expected. And the usual suspects — the die-hard inflationists, the political enemies of the Biden administration and the economists who wrongly predicted that disinflation would require mass unemployment — pounced on the data as if it were a loose ball.
So are the good times over? No. Everything we know suggests that these disappointing numbers were largely a statistical anomaly and do not represent a significant deterioration in inflation trends. Before I explain how such imbalances can arise, I would like to tell you what indicators I analyzed after the release of the inflation reports.
First I looked at the financial markets, where instruments such as swaps are used [derivados] Inflation rates and indexed bonds indicate the inflation rates expected by investors risking real money. The prices of these instruments continue to indicate low inflation of around 2% or slightly above. Second, I've been waiting to see what happens with the Atlanta Federal Reserve's survey of business inflation expectations, which asks business owners how much they think costs will rise next year. If inflation suddenly increased, you would expect companies to take notice. But their inflation expectations rose to 2.3% in February from … 2.2% in January.
If not much has changed, what about the somewhat frightening numbers from the Bureau of Labor Statistics? Essentially, the government calculates general consumer prices the same way the American Farm Bureau Federation calculates the price of a typical Thanksgiving dinner (which, by the way, is down 4.5% in 2023): it calculates the cost of buying one fixed basket of goods and services.
In practice, our economy is more complicated than a standardized holiday menu, and calculating inflation requires a lot of complex statistical work. The Bureau of Labor Statistics is extremely competent and professional; In fact, a rarely touted political advantage of the United States over other countries is that it generally has better data. Although I have nothing but praise for the Office, its reports can sometimes be misleading for a number of reasons.
One is that the monthly data only makes sense if it is adjusted for seasonal factors. Some of these factors are obvious: Fresh vegetables are more expensive in winter and cheaper in summer. Others are less obvious. Goldman Sachs, which correctly predicted a rise in official inflation, points out that there is a “January effect” in prices because many companies increase them at the beginning of the year. And Goldman argued beforehand that official numbers would not be adjusted enough to reflect that effect, leading to a false rebound in measured inflation, a recovery that will fade in the coming months. Goldman also pointed out that the most important component of the CPI – as much as 27% of the basket – is a price that no one actually pays: the owners' equivalent rent, a calculation of what the owners would pay if they owned their home would rent out houses. There are reasons why the Bureau measures housing costs this way, but there are also reasons to believe that the number has been made misleading by distorting and inflating estimates of headline inflation. The Bureau of Labor Statistics also produces an estimate of prices excluding homeowners' corresponding rent, which is in line with the way European countries measure inflation. This “harmonized” index rose just 2.3% last year.
If you're a little surprised by all of this, I'd like to let you in on a secret: me too, and that's supposed to be my area of expertise. But the bottom line is important: Even if some numbers were disappointing, the basic story hasn't changed. The American economy still appears to be an amazing success story.
Logically, this statement provokes resentment from Republicans who have declared endlessly that Biden's “socialist” policies would be a disaster, and as I wrote recently, these people need to believe to see why they continue to insist on where the economy is terrible, even if objectively speaking it's going quite well. There is also some pushback from some on the left who seem to believe that a progressive president should not be able to brag about his political achievements until he has completely eliminated poverty and insecurity, which is to say never.
But the truth is that Biden has launched a very ambitious program: important improvements to Obamacare [Ley de Atención Médica Asequible], student debt relief, high infrastructure spending, large-scale support for semiconductors and green energy, which has led to increased investment in the manufacturing sector. Many voices warned that he was going too far and that the economy would pay a high price. But it was not like that. It turns out that the United States can actually afford to do many things to improve the lives of its citizens and invest in the future.
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