Today is Wednesday, and I checked overnight for the release of the US Consumer Price Index (CPI), which set off alarm bells for “financial markets” and mainstream economists. My assessment is that there is not much to see – items with less volatile annual inflation are still falling, while the lagged impact of housing (housing) is still evident, although that component is also falling. I also examine the argument that increasing trends toward self-reliance among states could trigger new global conflicts. My personal view on this trend is that it must accelerate in order for us to shift to a growth trajectory. I ended with some beautiful concertina music.
US inflation data – no reason to assume it’s accelerating again
The U.S. Bureau of Labor Statistics released the latest CPI data overnight (March 12, 2024) – Consumer Price Index Summary – February 2024.
The U.S. Bureau of Labor Statistics report states:
On a seasonally adjusted basis, the consumer price index for all urban consumers (CPI-U) rose 0.4% in February after rising 0.3% in January…
Over the past 12 months, the All Items Index has risen 3.2%…
The housing index rose in February, as did the gasoline index. Together, these two indices accounted for more than 60 percent of the monthly increase in all project indices. The energy index rose 2.3% for the month, with all components rising. The food index was unchanged in February, as was the household food index.
Below is the monthly CPI change (in percentage) since January 2015 to February 2024.
One might conclude that inflation is accelerating again.
However, if we consider the trajectory of the “core” CPI inflation measure (which strips out energy and food trends) from a longer-term perspective (annualized), it is clear that US inflation is still falling.
Additionally, as I pointed out recently, the way the Bureau of Labor Statistics calculates changes in housing costs is odd.
Housing (in Bureau of Labor Statistics parlance – housing) accounts for about one-third of the total weight of the basket of goods and services included in the Consumer Price Index.
Therefore, changes in “housing” will always significantly affect the overall CPI results.
This explanatory note— Measuring price changes in CPI: rent and rent equivalents – Explain how the Bureau of Labor Statistics simplifies the calculation of changes in housing costs.
The Bureau of Labor Statistics considers “the housing services provided by a housing unit to its occupants to be the relevant consumption item of the Consumer Price Index.”
For “renting”, what reflects the “housing cost” is the rent paid.
However, if it is a self-occupied residence:
…Much of the cost of a home is hidden rent, which owners must pay if they rent a home without furnishings or utilities
So instead of trying to estimate the value of a housing unit, the BLS calculates what's called owner-equivalent rent (OER), which is what it costs to rent the property.
We know that rental costs always lag other cost movements and interest rate increases, which means we always see rises in the housing component of CPI lag behind declines in the rest of the CPI.
The image below shows this very clearly.
The overall message today is that U.S. inflation continues to decline, with overall inflation at 3.2% barely out of control.
Is self-reliance a harbinger of rising global conflicts or a necessary condition for economic decline?
I saw an article in the “Japan Times” a few days ago (March 10, 2024) – Economic self-reliance is a dangerous illusion – This recognizes that countries are increasingly focused on insulating themselves from shocks to global supply chains, such as we have seen during the COVID-19 pandemic.
“The vulnerabilities brought about by the deep integration of the global economy” have given rise to various strategies aimed at “shortening supply chains, rebuilding domestic production capacity and diversifying suppliers.”
However, the authors claim that while these trends are currently continuing, they are dangerous and could lead to war between countries.
He distinguished between “self-reliance,” which aimed to “build domestic resilience in a less secure world,” and “protectionism,” which aimed specifically at removing “competitive” pressures from industry.
However, in his view, self-reliance is an illusion that will exacerbate “greater systemic instability.”
At issue is American exceptionalism, which he claims is on the wane.
Clearly, in stark contrast to authoritarian regimes such as China, American democracy has long been critical to “keeping the global market economy open.”
But this ability is diminishing due to the rise of China and its partnerships with other authoritarian regimes that evade global rules and order.
This is a very extraordinary interpretation of reality.
First of all, I don't think America is particularly democratic.
Second, the United States is the most militaristic country in history, solving problems through weapons and invasion – and if it doesn't invade it, it provides resources to other armies that create chaos (e.g., the current massacre in Gaza).
Third, these so-called global rules and market orders are actually oppressive frameworks that allow the richest countries to plunder the resources of economically poor but resource-rich countries, while maintaining an “aid” system through the World Bank and IMF . Make sure these countries stay poor.
China has adopted a different model and is now more attractive to poorer countries because it has been willing to develop local infrastructure – although not without its own “costs”.
The author's division of the country along so-called “democratic and authoritarian lines” is also an illusion.
The lobbying power of capital and the underground corruption that occasionally infiltrates the public sphere are poisoning every electoral system.
He believes that “the inward-looking nature of self-reliance inevitably conflicts with the desire for a larger economic sphere or for unobtainable goods”.
Solution: Do not seek, for example, to reduce military capabilities.
Instead, he wants to maintain a fully integrated global market economy under free trade agreements.
He made no mention of the toxic investor dispute mechanisms that are at the heart of all these agreements and set up companies to challenge the legislative intent of the state when private profits are hindered.
For those who dream of a global economy such as a single currency (the “internationalists”) who dominate progressive politics, there is another factor that is not usually considered, which I will discuss in more detail in my forthcoming book One factor.
That is, self-reliance, localization of production and distribution systems, and related aspects are not only critical to insulating countries from trade vulnerabilities.
We need to remind everyone how Australia struggled to obtain protective clothing for our health workers in the early months of the COVID-19 outbreak as we moved all production to China.
But beyond these reasons for pursuing shorter supply chains, an overwhelming reason for adopting this strategy is climate concerns.
Whether we like it or not, a worsening climate outlook will soon require major shifts in our production and consumption patterns.
I think a degrowth strategy will be necessary, if it's not too late.
But as part of the degrowth agenda, we need to pursue more local thinking when creating goods and services.
This does not mean that all trade will disappear.
I understand that food production in some parts of the world faces climate constraints that require imported products, although technology is quickly coming up with large-scale farming schemes in shacks and the like.
The rationale for self-reliance is therefore not to ensure increased global uncertainty (political etc.) but to reduce the carbon footprint.
If the world's nations agreed on the climate dangers we all face, there might be greater incentives to cooperate rather than predatory.
However, on that last point, I am deeply concerned that as Europe's food bowl area shrinks due to global warming and local flora failing to adapt quickly enough, Europe's armies may move south into Africa and so on.
In this sense, I sympathize with the author's concerns about the impending conflict.
Music – Accordion
This is what I heard at work this morning.
One day, I was driving home from the airport and listening to ABC Radio's music program, which included a segment featuring Irish musicians— Cormac Begley.
He is discussing the history of the accordion, the different types (from bass to piccolo) and the mechanics of the instrument.
It was a very interesting broadcast and I learned a lot from it.
He then concluded the interview by playing one of his signature pieces, “To War,” which he explained was a tribute to past family members who fought wars against the British invaders.
It's a masterful performance that shows how a relatively simple instrument based on reed vibrations can produce such evocative sounds.
This makes my long trips so much more enjoyable.
That's enough for today!
(c) Copyright 2024 William Mitchell. all rights reserved.