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Inflation Wednesday: Hot on Prices, Cold on Rate Cuts.

Posted: Apr 10, 2024

This past Friday’s headline employment report was strong across the board – but as has often been the case, this economy giveth and taketh away.

Today’s consumer price index (CPI) came in above expectations, with both headline and core (excluding volatile food and energy categories) CPI up by 0.4%over the month. Headline inflation was unchanged from last month’s report, but registered the highest yearly change since September.

On Friday, there may have been reason to celebrate the monthly pickup in wages, but by today, that optimism has come and gone.Workers lost out as real earnings were negative for the second month in a row. Over the first quarter of 2024, workers’ hourly earnings are down in inflation-adjusted terms.

Over the year, real earnings growth was nearly halved – from 1.1% growth to 0.6% – while after-tax income adjusted for inflation is also down over the year.

This report pours cold water on those counting on the Fed to cut rates in June, with markets now seeing a roughly 80% chance of the Fed holding firm at current rates. 
The fact that workers can see their pay raises wiped out by inflation gets to the heart of some recent research, “Why do We Dislike Inflation?” The upshot of this research is that workers experience a strong emotional reaction to inflation and the diminution of their living standards. Lately, workers have had good reason to be upset. While wage growth has traditionally been twice that of price growth over time, in recent years, workers have been losing out. Indeed, for over two years, workers’ annual pay growth was negative – meaning their pay was consistently worth less than the year prior:

As Americans look for institutions to blame for the current predicament, it’s no wonder the Biden administration is aggressively attempting to shift that blame to private businesses.