Is Inflation Dropping Almost 1% in Two Months Good News?

One thing we need to remember is that while the CPI is a measure of the change of prices over time it is also an indicator of aggregate demand and having the CPI fall by close to a whole percentage point in two months should give us pause.

It is just one indicator so you have to look at others to see if the CPI is showing a potential problem but unfortunately they are inconclusive, which is not bad news but it is not good news either.

We will have to wait and see if that big drop is a portent of some nasty economic clouds gathering on the horizon or if it is just the echo of the massive disruption that the pandemic caused and continues to cause.

You all may recall that when we were all sent home in March of 2020 and told to stay home inflation tanked. It dropped so far that for the months of April and May we were actually in deflation territory, with the topline yearly inflation number dropping into the negative and month-over-month dropping significantly into the negative for those two months. Then the impacts of the CERB and other government supports hit and inflation flattened out to around 0 to 0.5 percent. 

In other words, aggregate demand tanked. Everybody stopped buying except for the bare essential. However, the desire to spend money did not abate, we all just had to wait, causing a huge increase in pent up demand. Then in 2021, when the worst of the pandemic was over and vaccination rates were high enough we all decided to begin spending again with a vengeance. From haircuts to houses we went on a spending spree but before manufacturers could ratchet up production again and the supply chains that had been broken by the pandemic could be reestablished. Naturally, inflation spiked, everywhere, and then the war in Ukraine just made it worse.

That spending spree could not be sustained. It was already falling off before the high inflation and the higher interest rates that came with it cause an even bigger reduction in demand.

So again, demand fell, although not to the levels of the pandemic. That is what we are seeing with the steady decline in inflation in this country over the last year. Like many things in economics the precipitous decline in the last couple of months could just be an indication of an overcorrection, something that happens often in economics. Then again, it could be a harbinger of something bigger and nastier.

We will have to wait for the inflation data for the next few months to determine which one is true. If it is a harbinger then inflation will probably go down again and we should begin to worry. If it is just an overcorrection we should see inflation increase again, probably into the 2 to 2.5% range in the coming months and stabilize there.

Are Republicans Giving Democratic Voters a Reason to Vote

According to the polls the presidential election in the US is close. That is nothing new. It was close in 2020 and it was close in 2016. However, this closeness just seemed to happen in the last six weeks and it happened because Republican leaning pollsters flooded the political scene with polls saying the race is tight. Hell, I believe Donald Trump even stated that his campaign paid for pollsters to do just that.

My question is why? This election is going to come down to turnout. As I have stated before in this space there are more voters who dislike Donald Trump than like him so if they come out to vote he loses. So, it would be in his best interest to attempt to convince them to stay home. However, a race that looks close could do exactly the opposite. 

One of the reasons why Donald Trump won in 2016 was because everybody and their brother was stating that Hillary Clinton would win. I believe that convinced many Bernie Boys to stay home. They really did not like her as a candidate and that combined with the notion that their votes were not needed was all the motivation they needed to sit out the 2016 election. The result is history.

Then after four years of President Trump everybody that wanted him gone came out in droves. The result was an increase in votes for the Democratic candidate of around 6 million in 2020, while the number of votes for Donald Trump stayed at 2016 levels and he was history.

So, if Donald Trump and the Republicans want a result more closely resembling the 2016 election they should be encouraging the notion that Kamala Harris has a much better chance of winning than Donald Trump. That might convince those who do not like him but are also not that comfortable with a woman of colour being President to stay home. A close race may convince them to do otherwise.

If there is some grand strategy for the Republicans to push the narrative that the race is tight I cannot see it. Maybe the Republicans are worried about turning out their vote so showing a tight race would also convince them to show up too. Or maybe Donald Trump does not want to be seen as losing the election going into election day because of his fragile ego. Or maybe it is a whole other reason that I cannot see. Whatever the reason, I cannot believe encouraging potential voters of your opponent to vote is a sound strategy when their are more of them than your own voters. But what do I know?