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Inflation Staying Stubbornly High
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Inflation Staying Stubbornly High

The numbers have taken the shine off last year's Pollyannaish narratives about inflation's causes.

Happy Monday! Tennessee over Alabama, Padres over Dodgers, Jets over Packers? What a weekend for underdogs.

Quick Hits: Today’s Top Stories

  • The Chinese Communist Party (CCP) kicked off its 20th party congress on Sunday, starting off the event—which is held every five years—with a lengthy speech from President Xi Jinping. In it, Xi defended China’s strict COVID-zero policies, claimed economic development will be the CCP’s “top priority,” promoted military growth and modernization, commended China’s crackdown on Hong Kong and hinted at Taiwan reunification, and more. Xi is expected to break from precedent in the coming days and award himself a third five-year term as general secretary of the CCP. 
  • British Prime Minister Liz Truss announced Friday she had fired Chancellor of the Exchequer Kwasi Kwarteng weeks after his proposed “mini-budget” sent markets reeling and sparked intense political backlash. Kwarteng’s replacement—former U.K. Foreign Affairs Secretary Jeremy Hunt—vowed over the weekend to reverse some of Truss and Kwarteng’s deficit-financed, pro-growth policies, pitching fiscal responsibility instead of tax cuts. “Some taxes will not be cut as quickly as people want, and some taxes will go up,” he told the BBC. “What doesn’t work is to fund tax cuts by increasing borrowing and debt. They have to be tax cuts that people can see that you can afford to keep funding, year in and year out.” Criticism of Truss is growing louder, with some Conservative Party sources openly speculating she might not last another week as prime minister.
  • Now entering their fifth week, the Iranian protests sparked by the death of 22-year-old Mahsa Amini in police custody have continued to rage, with a scuffle between detained protesters and prison guards at Evin Prison in Tehran turning violent and sparking a fire that killed at least four people. Iranian officials blamed an escape attempt for the violence at the prison, which serves as a symbol of political repression in Iran. At least 233 people have died in the demonstrations, according to the U.S.-based Human Rights Activists News Agency, including 32 children. Labeling the United States the “great Satan,” Iranian President Ebrahim Raisi blamed President Joe Biden for inciting the “chaos, terror and destruction” in Iran. 
  • At least 41 people were killed—and 11 hospitalized—by an explosion in a coal mine in northern Turkey on Friday, the largest such disaster in the country in nearly a decade. Turkish President Recep Tayyip Erdogan visited the site over the weekend, vowing judicial officials would go after “even the slightest negligence.”
  • Russian state media reported Saturday that two people—whom Russia’s Defense Ministry later labeled as terrorists from a former Soviet republic—opened fire at a Russian military training ground in the Belgorod region near Ukraine, killing 11 and wounding 15. The gunmen were reportedly killed in retaliatory fire.
  • The Pentagon announced a new $725 million security assistance package for Ukraine on Friday, tapping into previously approved congressional aid to send Ukraine additional HIMARS ammunition, 5,000 anti-tank weapons, several high-speed anti-radiation missiles, 200 high mobility multipurpose wheeled wheeled vehicles, medical supplies, and more. 
  • In light of ongoing labor shortages, the Department of Homeland Security announced last week it will make an additional 64,700 H-2B nonagricultural worker visas available to U.S. employers looking to hire temporary workers in fiscal year 2023—on top of the typical 66,000 visas allotted every fiscal year. As part of the Biden administration’s pledge to “expand legal pathways as an alternative to irregular migration,” 20,000 of the visas are reserved for workers from Haiti, Honduras, Guatemala, and El Salvador.
  • Kroger announced plans on Friday to acquire Albertsons in a $24.6 billion deal that would combine two of the United States’ four largest supermarket chains. The companies—which operate grocery stores under names like Ralphs, Safeway, Jewel-Osco, Harris Teeter, Vons, and more—claim the merger would allow the resulting constellation of stores to provide fresher food at a better value, but the deal is expected to face regulatory and antitrust scrutiny.
  • The Commerce Department reported Thursday that U.S. retail sales remained unchanged month-over-month in September after the measure increased 0.4 percent in August. Once the statistic is adjusted for inflation, however, real retail sales have fallen in four of the last five months.
  • The Department of Veterans Affairs announced Thursday it was expanding survivor benefits for survivors of LGBT veterans who were unable to get married until 2015’s Obergefell v. Hodges Supreme Court decision. Prior to last week’s move, many of those survivors were not married to their now-deceased veteran spouses long enough to qualify for benefits.

Inflation Staying Stubbornly High

(Photo by Joe Raedle/Getty Images.)

The S&P 500 rose 2.6 percent on Thursday—its sixth-best performance of 2022—after the Bureau of Labor Statistics (BLS) released its consumer price index (CPI) report for September. But if you think that means the data had anything positive to say about inflation, you’ve got another thing coming.

On paper, according to the BLS, the annual rate of inflation ticked down slightly in September, from 8.3 percent in August to 8.2 percent last month. But that figure is becoming increasingly irrelevant in the fight against higher prices, as it says more about trends from last fall than this one. Mechanically speaking, that year-over-year drop from 8.3 percent to 8.2 percent comes from swapping out September 2021’s month-over-month figure—0.41 percent—for September 2022’s 0.386 percent.

Monthly inflation of 0.386 percent is still way too high. Not only does it come out to an annualized rate going forward of 4.6 percent—well above the Federal Reserve’s 2 percent target (though that’s based on PCE inflation, not CPI)—but it was double what most economists expected, and it’s going in the wrong direction. Month-over-month inflation was ever-so-slightly negative in July at -0.0193 percent, and a manageable 0.118 percent in August. Add in the fact that core inflation—which is seen as more predictive of future trends because it strips out the most volatile sectors, food and energy—remained elevated in September and reached a 40-year high on an annual basis, and it starts to make sense why the S&P 500 gave up nearly all its ill-begotten Thursday gains 24 hours later, heading into the weekend down 2.37 percent.

With the pace of price hikes persisting last month even as gas prices fell and supply-chain pressures hit their lowest level in several years, September’s report inflicted serious damage on some of the more optimistic inflation narratives. “These data obliterate the thesis that high core inflation in the spring and early summer was entirely or mostly passthrough from the Ukraine war,” said Jason Furman, Harvard University economist and former chair of President Barack Obama’s Council of Economic Advisers. “The data also continue to be unkind to another thesis that was popular last year that inflation was being driven by transitory supply chain issues with goods. Goods inflation has come down a lot but has now just spread to services leaving core unchanged.”

The bursting of those bubbles has given birth to yet another cheery spin: that the stubborn inflation numbers of the last few months are largely attributable to one out-of-date input. “The housing market is really slowing massively, but the CPI data works with a massive lag,” said Brendan Walsh, principal at Markets Policy Partners. “It’s literally a six-month rolling average. So you’re not going to see these drops in rent prices until probably January or February 2023.”

He’s right. According to a number of real-time measures—from Redfin, Realtor.com, Apartments.com—asking rents are decelerating, or even declining, in most cities around the country. But those analyses are looking only at new leases, while CPI attempts to capture a longer time horizon, because “many rents change infrequently, being locked in place for a given lease term.” That’s how September’s CPI report can show rent prices increased at a 9.6 percent annual rate last month, while Redfin can say they decreased at a 30 percent annualized rate. And when shelter accounts for nearly a third of the entire CPI calculation, that disparity matters.

But not enough to meaningfully alter the predicament we find ourselves in. “There is something to [the lagging rent prices hypothesis], but the core inflation data look pretty bad even if you exclude shelter,” Furman said, noting core inflation with the shelter category removed still came in at a 5.6 percent annualized rate last month. “The housing rent measurement discourse is emblematic of a lot that has gone wrong in the inflation discourse over the last eighteen months: Take something that is true, ignore the magnitude, and ignore things going the other way.”

When it comes to rising prices, the Federal Reserve is no longer ignoring anything. And last week’s “disappointing” report, per Federal Reserve Bank of San Francisco President Mary Daly, all but assured the central bank’s hawkish positioning will continue—likely tipping the country into a recession. Last month, futures markets said there was a 30.7 percent chance the Fed would begin slowing its aggressive pace of interest-rate hikes from 75 basis points to 50 basis points at the committee’s November meeting. Now? Just a 1.8 percent chance.

Dispatch Website Tip of the Day

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Did you know that, on the desktop version of The Dispatch, the scrolling banner at the top of the page is the subject line of that day’s Morning Dispatch? You can navigate to that day’s newsletter just by clicking on that blue bar.

The Morning Dispatch can also be accessed from the main menu, in the featured section.

We’ll continue to provide pointers and updates on the site in the coming days, but, as always, if you have any immediate questions, feel free to let us know here.

Worth Your Time

  • The modern conservative movement in the United States was founded partly in direct opposition to the Eisenhower administration—but President Dwight Eisenhower is actually an example of effective conservative governance, Geoffrey Kabaservice argues in The American Conservative. “Eisenhower was the most fiscally conservative president of the past ninety years, yet he also expanded the scope and power of the state to fight and win the Cold War,” Kabaservice writes. “No Republican president since has come close to Eisenhower’s record of balancing the budget three times in eight years, cutting the federal workforce by more than 10 percent, slimming federal expenditures from 21 percent of GNP to 15 percent in his last budget, and reducing the ratio of national debt to GNP. At the same time, his global strategy of containing communism entailed major investments in education and research, huge infrastructural projects such as the national highway program, and the creation of new government agencies, departments, and other bodies.”
  • Robbie Coltrane—the actor who portrayed the lovable giant Hagrid in the Harry Potter movies—died on Friday at age 72. In The Atlantic, Shirley Li remembers the depth Coltrane brought to a character who could have become mere caricature and comic relief. “Even Hagrid’s most absurd moments came with a knowingness, a vulnerability that captured the character’s harsh past, as a half-giant abandoned by his giantess mother, bullied by Hogwarts classmates, and desperate to keep his genetic history a secret,” Li writes. “Hagrid, apart from a touching sequence at the end of the second film, was rarely the star of the show, but his compassion for the heroes helped sustain the sprawling story’s heart, and Coltrane recognized the value in his character from the beginning. In an interview for the franchise’s 20th anniversary special, the actor compared Hagrid to Superman. ‘You wish there were a power for good in the world that was irresistible to the bad guys,’ he said. ‘And Hagrid was always obviously the good guy, wasn’t he?’ He certainly was.”
  • Pickled squid, briny cucumbers, soy sauce—Japan loves its salt. But about half of adults in the country have high blood pressure, so researchers are looking for a way to replicate salt’s tasty punch without its sodium side effects. One solution? Electrified chopsticks. “Beer maker Kirin Holdings Co. has developed chopsticks that deliver an electric current to trick taste buds into tasting a lot of salt in foods that have only a little,” Miho Inada reports for the Wall Street Journal. “Dipping the utensils into a bowl of low-sodium miso soup makes it taste like the real thing. A four-position dial controls the degree of saltiness, and it works for soups, stews and other dishes with liquid. Maneuvering the high-tech chopsticks—still in the laboratory stage—is less than elegant. Diners have to tie a powered control unit around their wrist and string a cable to the chopsticks. Researchers say the next step is to shrink the electronics small enough to incorporate into chopsticks.”

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Toeing the Company Line

  • In case you missed it last week: We’re hiring again! If you know anyone who would be a good fit for our new associate editor position—or you’re interested yourself—more information can be found here. We’re looking for an individual with at least three years of editing experience who will work closely with outside contributors and Dispatch staffers on both the front and back end of the writing process.
  • This month’s Dispatch Book Club (🔒) pick is Rutger Bregman’s Humankind: A Hopeful History, which argues the pessimistic take on our species—that we’re driven primarily by self-interest—is full of faulty assumptions. Members reading the book can—and should!—join the discussion here.
  • Chris takes a look at a tale of two Senate meltdowns in Friday’s edition of Stirewaltisms (🔒), concluding Herschel Walker’s struggles in Georgia are directionally not all that dissimilar from John Fetterman’s in Pennsylvania. “While [Fetterman’s] vulnerabilities are not characterological, like those of Walker, they are related to the same idea,” he writes. “Are we comfortable with having this person representing the state for six long years?”
  • Jonah takes a meandering path in Friday’s G-File, discussing the phrase “hold your horses” and myths about the QWERTY keyboard on his way to marriage, gender, and the predictable costs of tearing down institutions or making sweeping cultural changes swiftly.
  • If we know Christians aren’t perfect, why do sin and hypocrisy from Christians drive people from the faith? David attempts to answer that question in Sunday’s French Press, examining the consequences of American evangelicals’ tendency to define faith by morality. “Time and again, when our commitment to morality collides with our self-interest, then our self-interest wins,” David writes. “A religion of morality devolves to a religion of self.”
  • Chinese President Xi Jinping is poised for confirmation to a third term as president—a signal that he’ll likely lead China for life. In a piece for the site, Harvest explains the significance of this weekend’s party congress—and the key takeaways from Xi’s first decade in power.
  • In the culture section this weekend, Price explores the longing for homecoming in Anthony Doerr’s 2021 novel Cloud Cuckoo Land, while Guy Denton reviews a documentary that almost manages to make David Bowie boring. Plus, we excerpt a chapter from Tyler Dunne’s new book The Blood and Guts: How Tight Ends Save Football about how Chicago Bears tight end Mike Ditka changed the NFL. 
  • On the site today, Harvest reports on Republicans’ hopes to capture more votes from Latinos in November, Chris compares pre-midterm voter enthusiasm to football fans filling a stadium, and Gary Schmitt argues President Joe Biden’s off-the-cuff rhetoric is a longtime trend with big-time consequences.

Let Us Know

What purchase triggered the biggest sense of sticker shock for you over the past year or so as inflation became entrenched in the economy? Something at the grocery store? The gas station? A home appliance?

Declan Garvey is the executive editor at the Dispatch and is based in Washington, D.C. Prior to joining the company in 2019, he worked in public affairs at Hamilton Place Strategies and market research at Echelon Insights. When Declan is not assigning and editing pieces, he is probably watching a Cubs game, listening to podcasts on 3x speed, or trying a new recipe with his wife.

Esther Eaton is a former deputy editor of The Morning Dispatch.