The economic news in 2023 was almost miraculously good.
The U.S. economy defied not only widespread recession forecasts but also claims that only a significant rise in unemployment could curb inflation.
What we experienced was, rather, a combination of strong growth, unemployment near a 50-year low, 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 what analysts expected. analysts.
And the usual suspects — the hardened 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 indicates that those disappointing numbers were mostly a statistical blip and do not represent a significant worsening of inflationary trends.
Before I explain how such imbalances can occur, let me tell you what indicators I analyzed after the inflation reports were published.
First, I looked at financial markets, where instruments like inflation swaps and indexed bonds indicate the inflation rates expected by investors risking real money.
The prices of these instruments continue to point to low inflation, around 2% or slightly above.
Second, I've been waiting to see what happens with the Atlanta Fed's survey of business inflation expectations, which asks business owners how much they think costs will rise over the next year.
If inflation were suddenly rising, you would expect businesses to notice.
But their inflation expectations rose to 2.3% in February from... 2.2% in January.
If things haven't changed much, why those slightly scary numbers from the Bureau of Labor Statistics?
In principle, the government calculates general consumer prices in the same way that the American Farm Bureau Federation calculates the price of a typical Thanksgiving dinner (which, by the way, is down 4.5% in 2023) : calculates the cost of purchasing a fixed basket of goods and services.
In practice, our economy is more complicated than a standardized holiday dinner menu, and calculating inflation involves a lot of complex statistical work.
The Bureau of Labor Statistics is extremely competent and professional;
In fact, a rarely touted political advantage that the United States has over other countries is that it generally has better data.
But while I have nothing but praise for the Bureau, its reports can sometimes be misleading, for a variety of reasons.
One of them is that, for the monthly data to make sense, they must be 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 an increase in official inflation, points out that there is a “January effect” in prices, because many companies raise them at the beginning of the year.
And Goldman argued beforehand that the official numbers would not be adjusted enough to reflect this effect, leading to a spurious rebound in measured inflation, a rebound that will fade in the coming months.
Goldman also pointed out that the most important component of the CPI—27% of the basket, no less—is a price that no one really pays: the homeowner's rent equivalent, an estimate of what homeowners would pay if they rented their homes.
There are reasons why the Bureau measures housing costs this way, but there are also reasons to believe that figure has become misleading by distorting and exaggerating estimates of overall inflation.
The Bureau of Labor Statistics also produces an estimate of prices excluding landlords' equivalent rent, which matches the way European countries measure inflation.
This “harmonized” index only rose 2.3% last year.
If all this boggles your mind a little, let me tell you a secret: it does me too, and this is supposed to be my field.
But the bottom line is important: Although some numbers were disappointing, the basic story has not changed.
The American economy continues to look like an amazing success story.
Logically, saying this provokes rejection from Republicans who have stated endlessly that Biden's “socialist” policies would be a disaster and, as I have recently written, these people have to believe to see, which is why they continue to insist on that the economy is terrible, even though, by all objective measures, it is doing quite well.
There is also some pushback among some on the left, who apparently believe that a progressive president should not be able to boast about his political successes until he has completely eliminated poverty and insecurity, which is to say, never.
However, the truth is that Biden has launched a very ambitious program: major improvements to Obamacare [Affordable Care Act], student debt relief, heavy infrastructure spending, large-scale promotion of semiconductors and energy green which has led to an increase in investment in the manufacturing sector.
Many voices warned that he was overreaching, that the economy would pay a high price.
But it has not been that way.
It turns out that, in fact, the United States can afford to do many things to improve the lives of its citizens and invest in the future.
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