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The Fed Waited Too Long: Here Comes Inflation
By EconMatters
CPI Core Shows Inflation
The drop in energy prices, had the knee jerk reaction that we were in a deflationary spiral, again markets get many things wrong on first blush. The drop in energy prices is inflationary in the overall economy, and today`s CPI report showed what a sophisticated analysis would forecast regarding inflation and the role that low energy prices play in the overall inflation equation. We are going to have a transfer from the food and energy components which rely heavily on energy costs into the core inflation reading as consumers have more money in their pockets for true discretionary spending, and all these components` prices are going to rise in the CPI Inflation Index.
Wages, Wages, Wages
What should really be worrying for the Fed is that wages have been spiking under the radar for 2014, up ahead of the overall inflation metric, and leading the way on inflation, and 2015 has seen an even greater surge in wage inflation, again you might not want what you wish for when it actually comes to fruition, with wages surging the Fed now has no choice but to raise rates, and raise them fast!
Walmart: Canary in the Coal Mine
It should have been a warning sign to the Fed when Walmart of all people voluntarily raises wages across the board for its employees, they aren`t doing this out of the kindness of their heart. If one takes a look at the JOLTS numbers, and the competition for employees in a tightening labor market, wages are going to have to rise to compete for the available labor pool. 2015 is going to be the year of the wages, and inflation is going to blow through the Fed`s 2% target towards the end of the year once the bad energy comp components come out of the data set.
Lower Energy Costs are Inflationary to the Overall Economy
The drop in energy made everyone complacent on inflation, and everyone just assumed that inflation was never going to rear its ugly head again, but that was a mistake because we have had some elevated inflation numbers in the past 20 years with much less money printing, much higher Fed Funds Rates, and much lower overall energy costs coursing through the entire economic system. So when you look at the employment numbers for 2014 and 2015 it was only a matter of time before core inflation started picking up, stealthy at first due to the drop in energy prices, but slowly gaining steam under the radar, and the longer the Fed waits on raising rates the more they are going to have to raise rates the back half of 2016.
Follow the CPI: This is where the Demand is for Employees
This inflation surge is going to be led by wage inflation, which is to be expected given the tightening labor market, as lower fuel costs serve as a major economic stimulus net in the overall economy; leading to demand for workers in all the areas of the economy where this newfound stimulus is going, namely the services, manufacturing, and entertainment sectors of the economy.
Retail Never Voluntarily Raises Wages Across the Board
By the time the markets and the Fed realize that inflation is a problem it is too late, today`s Core CPI reading ought to be the second warning signal for the Fed, the first being Walmart raising wages across the board for employees, that just doesn`t happen in my lifetime for the retail sector, they go out of their way to keep employee wages down as a cost component because margins are so tight, management is even incentivized to keep employee costs extremely low in many retail environments.
The fact that Walmart raised wages in the manner that it did ought to have alerted the Fed that something is going on in the underlying employment dynamics of the labor market that they aren`t addressing with their current ZIRP stance. By the time they realize that the labor market is so tight that employers are voluntarily raising wages across the board it is far too late, you are officially behind the curve as the surge in wage inflation is signaling loud and clear.
The Inflationary Cycle & the Vicious Cycle of Surging Wages in a Tight Labor Market
We were all expecting inflation to be problem with ZIRP, everything goes in cycles, wages were the last component to gain any footing in the inflation equation, but once they get started it becomes a self-reinforcing dynamic where higher wages lead to employees quitting lower paying jobs to move to higher paying jobs, employers then start competing for employees leading to more wage increases, all of which leads to a competitive fight over the existing available labor pool where the employees have the upper hand, something that hasn`t occurred for 8 plus years of the latest economic cycle. Well Janet Yellen you finally got your request granted in terms of wanting to see some wage inflation, one should be cautious what one wishes for because now it means you have no further excuse for not raising rates ASAP!
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The good news is that corporations are run by people like you and me.
The bad news is that corporations are run by people like you and me.
Everybody's looking out for themselves.
Example: Word comes down to lay off 10 people in your dept.
Do you include yourself in those 10 people?
Damn right you don't.
"It should have been a warning sign to the Fed when Walmart of all people voluntarily raises wages across the board for its employees,"
See, big corporations ARE people....
Is that nadir ZH ? I think I've seen worse, but close enough.
But, but, but the FRBNY says to ignore oil prices when assessing inflation. A drop, or rise, in oil prices do not affect inflation and therefore the wizards behind the curtain don't include such numbers when calculatin inflation.
How can you dare contridict her Royal Yentaness Yellen?
We don't need a raise! Just because my grocery bill has tripled since 2008, and housing prices are rising rapidly the stawk markit is gud and that's all that matters!
Right?
sarc/on
This shit article was brought to you by CNBS!
Stay Tuned
job pix is better?
this is a joke right?
had the same thought... article is ludicrous imho...larger job pool the reason to raise salaries? wtf?
"This inflation surge is going to be led by wage inflation, which is to be expected given the tightening labor market, as lower fuel costs serve as a major economic stimulus net in the overall economy; leading to demand for workers in all the areas of the economy where this newfound stimulus is going, namely the services, manufacturing, and entertainment sectors of the economy.
Hasn't the meme of lower gas prices leading to blah-blah, already been sufficiently Torpedoed, or does it need another salvo for good measure...?
I agree except the part about Walmart raising wages because of a "tighter" labor market. There's plenty of people not working. The fact is that the entitlements are the competition for these entry level workers, not other employers.
Partly true, but we employers want people who actually perform as employees after they are hired, and we employers know from experience that most of the people who are "habitual" entitlement tit-suckers are also lazy and incompetent, too many are thieving parasites and drug addicts, and therefore not considered as "viable employment candidates".
Thus there is a genuine competition for "viable employment candidates", ie the ones who actually come to work on time reliably, who actually want to do work while at work, who don't steal everything that is not locked up and guarded, who are not high on alcohol & drugs, etc, etc.
From an employer's perspective, looking for good employees, the entitlement state has both created and nourished a huge and growing crop of worthless zombie social parasites. In my opinion they should just be recycled, making more resources available for those who deserve, ie earn, them.
This inflation surge is going to be led by wage inflation, which is to be expected given the tightening labor market, as lower fuel costs serve as a major economic stimulus net in the overall economy...stimulus? It just means I can afford 2lbs of hamburger for the week instead of 1. But I still get paid the same so, no stimulus, just the same money going to a different place.
Do people actually make a living writing this shit? Inflation has been under reported for years. Keep using government numbers and you appear to be part of the system, and have no concept of the real world. Wage inflation, are you kidding me so that minimum wage jump of 10% is going to cause all those people making $320 a week to go buy that $250,000 house, and all those things that go into that house?
If we had been using real inflation numbers, ones used in the stone age, you know the 1980's, one would see inflation numbers in the 5-7% area for the last decade. Apples to Orange's doesn't work.
What makes you think they won't change the way they gage inflation in the future? When the entire system is one big ponzi numbers don't matter. Fraudulent numbers are Fraudulent numbers.
The trend of rising wages is a ruse- a red herring. US real per-capita incomes are still falling, just as they have been since 1999.
as consumer prices begin rising, the fed will MAYBE get away with 1 or 2 incremental rate hikes, then BOOM- the bond market will quake as the Treasury fails to come up with a "plan B" for paying its bills, which will inspire the profit-takers to pull the rug out from under the stock market, causing municipal bonds to crater; and the panic-chasers will run the "red alert" flag up the pole, and BAM- QE will be right back on the table...
wash, rinse, repeat....
There is no tightness in the low-skilled labor markets. Employers still have dozens of applicants for virtually every low-skill job opening.
Commodity prices across the board are plummeting because there is rampant overcapacity in virtually all industries that produce actual tangible products rather than government-sponsored bullshit "services" like insurance and education.
So I think the author's entire premise is hopelessly flawed.
There's a very simple reason for retailers raising wages. They have a choice. They can pay shit wages and have higher labor turnover (higher quit rates and more new hires) or they can pay better wages and have lower labor turnover (lower quit rates and fewer new hires). So the question for the retailer is "which approach is more beneficial to the bottom line?"
Wrong, Vegasbob!
Hi turnover ensures low wages (No one sticks around long enough to get a crappy 2% increase).
Most of all, newbies dont start UNIONS!
It's always the old timers that organize unions. Get it?
There are real costs involved in recruiting and training new employees. OF course, the lower the skill the less the cost but it is real nontheless.
*
Sorrry, no inflation coming..
Since '07, global debt increased by $57 trillion
$19 trillion "advanced economies" new government debt
$21 trillion was China "private sector"...primarily related to housing debt
$17 trillion the rest of the world
Now, China's housing bubble is busting. The global engine for new debt creation has just gone bust while "advanced economies" governments and rest of world new debt creation is slowing. Without the new credit and debt, the massive oversupply of everything globally is laid bare. Oil, shipping, manufacturing, retail, etc. etc. A major depression is now upon us...but don't look for it in the stock market.
Check this for details...
http://econimica.blogspot.com/2015/02/fundamentally-flawed-chapter-1-advanced.html
btw - as to the tightening employment, there are still 1 million fewer full time jobs in the US than '08...despite the increase of the US population by 18 million...part time jobs with no bene's are not the stuff of inflation spirals
Finally reality!
U got it,,,,,,,rising wages,,,,hyperinflation has arrived
Vicious cycle of rising wages? Walmart employees still can't afford to shop at Walmart yet.
LOL- just like how McDonalds employees have to trade 4 HOURS of their labor (fully half of an 8-hour shift) back to the company, just to to earn enough cash to purchase 3 "value meals" (one breakfast, two lunch/dinner) off of their own menu.
When McDonalds was founded in 1948, the average employee could eat 3 complete meals per day for the equivalent cost of only 1.5 hours of labor.
I'm not saying that ANYONE should try to subsist on the garbage Mcdonalds cranks out as "food" these days (although back in 48, McDonald's food was more genuine, and more akin to the higher quality stuff being cranked out today by newer burger chains like InNout) - I'm just merely making an observation about the destruction in purchasing power of the average Mickey-D's employee's hourly labor over the past 66 years...
The deflationary forces being kept in check due to QE etc. are too strong for any major inflation to happen with how the govt calculates it anyway. You will just see things like food, medical and education costs rising but we will be told there is no real inflation hardly.
I am part of the 99% of ZH readers that are completely fucking clueless about the bat-shit crazy economy.
I therefore rely and subscribe to ZH's analysis. If he says wage increases are a warning sign, then I tense my butt-cheeks accodingly.
Employers still have the upperhand with wages. They get a ton of applications for jobs that only pay 12 bucks an hour.
walmart raised wages to improve the quality of the employees they have (you can see that a lot of their eimployees are entry level, once they put some time in they can apply at Target for instance) dont read too much into that. the fed will always be more than happy to raise rates below the rate of inflation. this means you have to buy stocks, (call it a stealth bail in, keep your money in a 2% savings account with 4% inflation you are getting killed) wages might increase but the number of people working isn't. now that the workforce is predominantly contract, labor unions have little or nothing to offer, competition for the limited amount of available work will be intense. the GOP loves to play that card, while the DEMs want to run the labor market as though we were all in one big labor union. so benefits come into play, are you eligibile, GOP says no, Dems say more EBT. it all smells like the hyperinflation of the 70s without the mindnumbing nominal numbers, with CPI at a 100% of interest rates, say 10% and 5%, the news media is all over it, but keep that spread at 2% and 4% and nobody notices a thing.
Yep, they see the handwriting on the wall: A_M_A_Z_O_N and have to definitely improve that workforce. Ditto for operating in municipal environments where the outside costs (rents, utilities, taxes, etc) are only going higher.
Indication of runaway inflation? probably not
Isn't the Walmart wage increase just them front-running the states, and possibly Fed, hikes to the minimum wage?
And doesn't Walmart treat their hourly employees like zero-hour contract employees, so the jump to $9/hr will be accompanied by a decrease in scheduled hours?
Just wondering.
Of course. They will lower the hours. Then, they will bring in more part timers. They end up making more money since they aren't paying for bennies, like health care. Counties do the same thing at tax reassessment time. They lower the tax rate on higher appraised properties. Then, their buds in the media put it on the front page, "County Lowers Tax Rate". Nevermind, the total tax bill still went up.
it was in reaction to a court case.
who wrote this stupid article?
blip
Just click every commenter a greenie on this one boys...saves on the reading time.
Simple question in all of this, does the debt matter or not? Everything else is fucking noise by comparison.
I used to believe, "Yes, the debt DOES matter."
Now I'm thinking that maybe I have been (once again) too naive. I mean after what we learned yesterday, that the debt can simply be "disappeared" with a single chart or graph.
........."aaaaaaand, IT'S GONE!"
Government wages always increase.
Since when is this news?
"higher wages lead to employees quitting lower paying jobs to move to higher paying jobs," -- really, what has been happening to the cost of education again? Low wage employee CANNOT simply "move to higher paying jobs".
What a useless fucking tool.
Another perspective:
Continued entitlements and less reason to work are effectively increasing the wage base. Lets face it, fewer are willing to work today...because they don't have to. Especially in low wage jobs like Walmart who are competing for employees DIRECTLY with government subsidies. What wage inflation we are seeing is going to have a very low threshold as it won't translate upward very easily. Lets face it...there just aren't that many good jobs out there. This guy is trying to conflate these low wage jobs with higher ones, which might work in a functioning economy, but we know the old rules don't count in this government distorted madhouse today.
LMFAO! Wage inflation? remind us, what percentage of the population is actually working again? Of those that do have a job, what is their average wage again?
We are point to Walmart as an example of "success"...
morons.
The percentage of unemployed in African and colored societies all over the world is multitudes higher than in White and bright Asian societies. The USA has been transformed dramatically. It's no longer a White country. Politics follows biology.
Time to give up the reactionary imagination how a well organized, well administered and well led country looks like. There's a negro in the White House and times are changing quickly. Therefore also the old metrics no longer can be applied. 3rd world populace creates a 3rd world reality. Don't believe me? Believe South Africa.
Politics follows biology.
There really could be a lack of useful and qualified workers while all the yesterday men look at the old statistics from the good old times when the USA was a White country.
This article is interesting and maybe much less LOL than you believe.
You could be right. If I were a Walmart manager, I wouldn't hire Emperor Caniggula to work in my store...
Emperor Caniggula?
ROFL!
I hope there is no inflation because this deflation I keep hearing about is stealing me blind.
They're stuck; raising rates has been out of the question for some time now. They only have one trick left, kill the dollar.
redefininggod dot com. Someone posted this one yesterday. This guy's guess is the FED becomes the fall guy for the next recession (within our ongoing depression). Then, the IMF pulls out the ol SDR(Jim Rickards is talking the same way) around late 2016, early '17. Hyperinflation planned.
http://redefininggod.com/nwo-schedule-of-implementation/
Actually this does make sense, despite all the ZH skeptics. WalMart has taken a page out of Henry Ford's playbook.
You mean they have racist tendencies, create hemp vehicles that run on hemp oil, and believe managing leaders is best done by trying to destroy the best in your company and stifeling all progress?
Hear comes inflation. Yep, I can here it coming.
I almost don't even want to read the article because of this; how can we listen to someone who isn't smart enough to not make such a stupid mistake?
Edit: It looks like they fixed the title, but the proof is still in the URL!
Raise rates? I'll believe it when the fat lady sings.