Ianās on his soap box this week with the release of the newest inflation numbers. Good: they seem to be getting better. Bad: the spin from the White House is transparently terrible. Itās DC-wishcasting at itās best.
Itās a political opinion piece, Weekly Upside edition. Disagree with Ianās take? Let him know in the comments section below.
Earlier this week we finally saw a bit of relief on the inflation front as the Consumer Price Index (CPI) was flat month over month. While prices overall were still up 8.5% year over year, it was good to see inflation slowing, specifically in energy over the last month. You would think this would make us focus on something else, butā¦
Not only does inflation remain a huge focus in the economic world, but we continue to have some problems with the way this topic has been covered.Ā
So letās back up for a minute. Inflation and CPI are split into āheadlineā numbers and ācoreā numbers. If you want to read more about it, go for it, but basically the headline is everything in CPI and core strips out food and energy because they tend to fluctuate much more than the other inputs that make up CPI.
Letās get into the core issue we have with the coverage of energy prices (see what I did there?).Ā
When energy prices, specifically gas, were rising significantly throughout the year, the media and the White House would often blame this on outside factors. Coining terms like Putinās Price Hike and debating whether we should track core or headline inflation. While inflation was raging higher, the Putin Price Hike was blamed and headline inflation was sold as irrelevant.
This week however, the president touted the headline inflation figure because it was flat, due to falling energy prices. Meanwhile, the still very high core inflation was ignored. Before this blog becomes too political, I would like to say I think itās incredibly stupid when any President ties themselves to something they canāt control. See former President Trumpās tweets as evidence of why this can backfire. Back to the current President, here he is a couple weeks ago claiming victory over Putin and his gas prices. Had a real dubya vibe to it for those keeping political scores.
Just as the Iraq War definitely didnāt end in 2003, we arenāt out of the woods on gas prices just yet, no matter how much this White House wishes we were. The chart Pres. Biden is touting there is something we lovingly refer to as a chart crime. The chart in this photo is gas prices falling since their peak. If we zoom out to prices since his inauguration, that chart takes a slightly different shape:
A chart crime here and there, or cherry picking data we will allow because. Well let's be honest we work in finance and marketing so if we didnāt allow that we wouldn't have a job. But the issue is villainizing certain industries while not applying the same scrutiny to others.Ā
One high level example is the CHIPS Act which is investing in producing more computer chips in America vs overseas. This is something we can get behind (despite the Pelosi insider trading) because it provides high paying jobs while controlling an important supply chain. That being said, the chip (semiconductor) industry average operating margin is 28.5% which is substantial even before any government subsidies.Ā
So, we authorize and celebrate subsidizing an industry with massive profit margins while we spent the first half of the year villainizing oil and gas companies. And we could argue that gasoline is a necessity and semiconductors is a luxury but we know in a modern economy that's not 100% true. But for the sake of this article I will allow that argument.Ā
But what about other things we ādonāt needā like alcohol or tobacco. If we look at the 2020 consensus we see the following spending amounts on gasoline vs āsinā (alcohol and tobacco).
So our spending on gas was significantly higher than sin but given razor thin profit margins on gasā¦
Alcohol and Tobacco made more profit on you in 2020 than oil companies did despite the fact you, on average, spent much less money on them.Ā
Whatās the Upside?
The media and government can spin a story whichever way they want. Regardless of party, channel, or even facts. But it is important to keep in mind what some of these numbers truly mean.
However you slice it inflation remains a problem, but there are some signs of easing pressures. And no matter what you think of the current political party, overregulating ācorporate greedā is not the answer to solving pricing problems.
For Your Weekend
Watch:
Prey (Hulu)
You know the Predator: the hulking, be-dreaded space alien who first faced off against equally hulking but clean shaven Ah-nuld back in 1987. The original is one of the best sci-fi actioners ever made in an era replete with them. In this reboot/prequel/preboot? the Predator is up against a Comanche woman in 1719. The alien has the tech, but does it know the land? Currently a winner with audiences (79%, 2500+ reviews) and critics (92%) alike on Rotten.