In this newsletter series, we have written a great deal about the economic challenges facing the United States and the rest of the world. It is not because we enjoy writing about these challenges and those that are on the horizon, but because we believe our readers within the aviation industry need to understand what is coming down the pike, and can prepare accordingly.
No doubt things are setting up to be very difficult moving forward. With inflation back on the rise haven’t slowed down for a couple of months, and the economic conditions that are pointing to a major recession, if not a depression are also increasing. In our article, ‘Aviation: Producer and Consumer Prices’ we effectively stated that the slowing we’ve seen in inflation is transitory when we stated that:
Just like with the consumer price index (CPI), the producer price index PPI has slowed in December 2022. However, the challenge here is that the underlying factors that lead to higher PPI that leads to even higher CPI have not disappeared, and in many cases, they are on the rise.
In our article, ‘3 Ways Aviation Businesses Are Coping With Inflation’, in trying to explain how high your cost for businesses will lead to higher prices for consumers, we stated that there are three main ways aviation businesses can respond to increasing inflation. 1) they can absorb rising costs, 2) they can pass on the increased costs to their customers through their products and services, or 3) they could apply a third approach of increasing efficiencies across the board that will allow them to offset the increase in producers’ prices. Yet, as we’ve also stated in our article, ‘Aviation: Producer and Consumer Prices’:
However, it is worth noting that if inflation continues to rise the most viable option for a business that wishes to continue operating profitably, is to pass off these increased costs to the paying customer.
This statement must be understood clearly. No business can remain viable without being able to have its total cost lower than its total revenue. Therefore, this is a major indication of challenges to come.
So we have talked about inflation and the economic challenges that could be brought onto businesses and consumers alike. But what about a recession? What about a depression? What about the worst that could happen, an inflationary depression? In our article, ‘Aviation: Producer and Consumer Prices’ we stated that:
The United States experienced stagflationonce during the 1970s. At that time it was considered impossible to have high inflation and slow economic growth at the same time. It is also worth noting that there are some economists and market analysts that are forecasting something much worse than stagflation. Peter Schiff, economist, and CEO of Euro Pacific Capital calls this an “Inflationary Depression”, where the economy enters into a depression while at the same time experiencing high inflation. Gerald Celente, founder/director of the Trends Research Institute, calls it ‘Dragflation’, where the economy not only experiences slow growth but negative growth while experiencing high inflation. The differences between these two phenomena are subtle, but the latter is more ominous.
In this somewhat long issue, we share two pieces that the reader may find invaluable in gaining a better understanding of where we are and what is to come. While gaining greater insights into how to become prepared.
Yes, we know. We have said this so many times. Yet, it is always worth answering this question: “What does this have to do with the aviation industry and the individuals and organizations operating within?” The aviation industry is one of the most fragile industries economically, is most vulnerable to an economic shock, and is most adversely affected by negative economic events. If high inflation and recessions can be devastating to the aviation industry and the individuals and entities operating within, an inflationary depression or dragflation could be even worse. Therefore, organizations and individuals alike within the aviation industry must not only have a working knowledge of these devastating phenomena but learn how to act and prepare in certain ways that mitigate their respective effects”.
For more readings on economic challenges and the aviation industry, please see also: ‘3 Ways Aviation Businesses Are Coping With Inflation’, ‘The Aviation Industry and Economic Uncertainties’, ‘Inflation: Higher costs and their effects on Flight Schools’, ‘High Interest Rates/Cost of Borrowing and Their Effects on Aviation Businesses’,’Debt: Its effects on the Aviation Industry’, ‘Economic Crisis and the Aviation Industry’, ‘Inflation and Aviation’, ‘How The Aviation Industry Needs To Look At Inflation’, ‘The Aviation Industry Must Not Mistake A Recession’, ‘Understanding Recessions’, ‘Understanding Inflation’, ‘Money and Recessions.’, ‘Breaking Down Inflation.’ , ‘Inflation: Here we go again…’’, ‘Recession: Should we still be concerned?’, ‘Stagflation: Should the Aviation Industry be Concerned?’ and ‘Aviation: Producer and Consumer Prices’
Back to Rising Inflation.
The federal government’s Bureau of Labor Statistics (BLS) released new price inflation data today, and according to the report, price inflation during the month decelerated slightly, coming in at the lowest year-over-year increase in sixteen months. According to the BLS, Consumer Price Index (CPI) inflation rose 6.4 percent year over year in January before seasonal adjustment. That’s down very slightly from December’s year-over-year increase of 6.5 percent, and January is the twenty-third month in a row with inflation above the Fed’s arbitrary 2 percent inflation target. Price inflation has now been above 6.0 percent for sixteen months in a row.
Meanwhile, month-over-month inflation rose to a three-month high, with the CPI rising 0.5 percent (seasonally adjusted) from December to January.
January’s year-over-year growth rate is down from June’s high of 9.1 percent, which was the highest price inflation rate since 1981. But January’s growth rate still keeps price inflation above growth rates seen in any month during the 1990s, 2000s, or 2010s. January’s increase was the fourteenth-largest increase in forty years.
The ongoing price increases largely reflect price growth in food, energy, transportation, and especially shelter. In other words, the prices of essentials all saw big increases in January over the previous year.
For example, in January “food at home”—i.e., grocery bills—was up 11.3 percent compared to January of the previous year. Energy overall was up 8.7 percent, while new vehicles were up 5.8 percent. Services saw some of the largest increases, with energy services up 15.6 percent and transportation services up 14.6 percent. The only category that showed a drop over the period was used cars and trucks, which was down 11.6 percent. This hardly returned car prices to 2019 levels, however. Used car price growth reached seventy-year highs throughout much of 2021, increasing year over year by over 20 percent or more in every month from April 2021 to April 2022.
As of January, there was no sign of price growth in shelter slowing down. Last month, shelter prices increased by 7.9 percent year over year, which was the highest growth rate since July 1982. Month-over-month growth in shelter costs also remained among the highest we’ve seen since 1983.
Meanwhile, so-called core inflation—CPI growth minus food and energy—has slowed slightly from the forty-year high reached in September. In January, year-over-year growth in core inflation was 5.6 percent. That’s down slightly from December’s growth rate of 5.7 percent. September’s year-over-year increase of 6.6 percent was the largest recorded since August 1982. January’s month-over-month growth in this measure was positive as well, with prices minus food and energy growing 0.4 percent (seasonally adjusted). That’s equal to December’s month-over-month change of 0.4 percent, and up from October’s and November’s growth rates of 0.3 percent. Month-to-month growth has been positive in every month since May 2020.
Meanwhile, November was yet another month of declining real wages, and was the twenty-second month in a row during which growth in average hourly earnings failed to keep up with CPI inflation. According to new BLS employment data released last week, hourly earnings increased 4.35 percent year over year in January, meaning wage growth fell behind inflation.
Inflation Is Not “Falling”
The Biden administration today—which has long been rather free and easy with how it slices and dices inflation numbers—said inflation is “coming down.” Joe Biden framed it like this:
Today’s data confirm that annual inflation has fallen for seven straight months. Inflation for food at the grocery store came down again last month. Gas prices are down about $1.60 from their peak last year. And real wages for working Americans are up over the last seven months, delivering welcome breathing room for American families.
This is a rather tortured description of the situation. With the CPI rising both month over month and year over year, it’s a bit of a stretch to say price inflation “came down” in January. It would be more accurate to say that the rate of increase slowed very slightly.
This hasn’t stopped President Biden from declaring that the economy has already achieved a “soft landing” as Politico suggested yesterday.
The markets apparently disagreed, as both the S&P 500 and the Dow Jones ended the day down. Markets likely fear that—in spite of Biden’s narrative—price inflation looks stubborn, suggesting the Fed will continue to move interest rates up. Wall Street, heavily dependent on easy money, wants to see inflation fall so that the Fed will begin loosening again. If price inflation is seen to be slowing, this could be interpreted as an excuse for the Fed to force interest rates back down and resume asset purchases. If a soft landing were already in the cards, Wall Street would be planning for an acceleration of monetary loosening.
The Fed has signaled that it is ready to end its current cycle of rate hikes if it can come up with a political excuse to do so. But with year-over-year CPI inflation still above 6 percent, the Fed is clearly a long way from its arbitrary 2 percent target rate. With this latest CPI report, markets are probably now expecting another 25 basis point rate hike in March.
Nonetheless, until we start to see obvious job losses that cannot be hidden or denied, we should expect to hear plenty from the White House about how “strong” the economy is. Yesterday, Cecilia Rouse of the US Council of Economic Advisers claimed that “these are extraordinary times for America’s economy,” suggesting that the job growth occurring during Biden’s tenure is unparalleled in recent decades. The truth, of course, is that this “job growth” is nothing more than a recovery of jobs that were destroyed by the lockdowns and the covid panic long supported by Biden. In other words, Biden supported breaking the economy’s legs and now wants credit for the fact that those legs have somewhat healed.
In spite of ongoing negative real wage growth, crippling price inflation in rents and home prices, and a notable decline in full-time work, we’ll keep hearing about the strength of the economy. Millions of Americans aren’t exactly feeling prosperous, however. As ABC reported this month, four in ten Americans polled say they are worse off financially since Biden took office. Of course, Biden is hardly the only one to blame. Donald Trump repeatedly called for massive amounts of monetary inflation, complaining on numerous occasions that the Federal Reserve was not inflating the money supply enough. Later, Trump’s record-breaking peacetime government deficits drove even more inflation. We are now living with the consequences of the Trump profligacy. Biden, however, will do nothing to reverse these policies and is thus making inflation and declining real wages part of his own legacy.
Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first. Ryan has a bachelor’s degree in economics and a master’s degree in public policy and international relations from the University of Colorado. He was a housing economist for the State of Colorado. He is the author of Breaking Away: The Case of Secession, Radical Decentralization, and Smaller Polities and Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.
This article was originally published in the Mises Wire on Feb 15, 2022, with the title “Food and Shelter Prices Keep Climbing as CPI Growth Hits a Three-Month High”. The views expressed are the author’s, and do not constitute an endorsement by or necessarily represent the views of On Aviation™ or its affiliates.
An Economic Hurricane?
Why is the U.S. economy suddenly deteriorating so rapidly all around us? Well, the short answer is that this downturn is way overdue. For years, our leaders tried to cheat the laws of economics. The Federal Reserve pushed interest rates all the way to the floor, which is something that never would happen in a true free market economy, and they pumped trillions of fresh dollars that they literally created out of thin air into the financial system. Meanwhile, our politicians in Washington were engaging in the greatest debt binge that the world has ever seen. All of this reckless manipulation seemed to work for a while, but many of us warned that it would inevitably create a major inflation crisis, and that is precisely what happened. So now the Fed is aggressively hiking interest rates in a desperate attempt to tame the inflation monster that they helped to create, and higher rates are absolutely crushing economic activity.
At this point, most Americans understand that something has seriously gone wrong, and this is pushing consumer confidence lower.
On Tuesday, we learned that consumer confidence has now fallen for two straight months to start 2023…
U.S. consumer confidence unexpectedly fell for the second straight month in February as Americans’ outlook on the economy tumbled further, showing how persistent inflation is weighing on shoppers amid looming recession fears.
The Conference Board’s latest Consumer Confidence Index released Tuesday declined to 102.9 for this month, slipping from 106.0 in January — which was revised lower. Economists polled by Refinitiv had expected February’s index to tick up to 108.5.
Even more troubling is the fact that Americans seem to be bracing themselves for more economic turbulence as 2023 rolls along.
The Conference Board’s senior director of economics, Ataman Ozyildirim, is warning that U.S. consumers are planning to do far less spending in the months ahead…
“Expectations for where jobs, incomes, and business conditions are headed over the next six months all fell sharply in February,” Ozyildirim reported, noting that “consumers may be showing early signs of pulling back spending in the face of high prices and rising interest rates.”
“Fewer consumers are planning to purchase homes or autos and they also appear to be scaling back plans to buy major appliances,” the economist added. “Vacation intentions also declined in February.”
So home sales could go down even more?
That is really bad news, because home sales in southern California have already fallen to the lowest level ever recorded…
When Christmas lights go up, home sales typically go down as buyers and sellers take a break.
But this past Christmas, Santa delivered a giant lump of coal to Southern California’s housing market, as well as to real estate agents, lenders, escrow officers and anyone else who gets paid by the transaction.
Closed sales this past January — which reflect deals signed during the holiday season — fell to 9,938, the lowest number of transactions in records dating back 35 years, real estate data firm CoreLogic reported Tuesday, Feb. 28.
As I keep telling my readers, a new housing crash has begun.
In fact, U.S. home prices have now declined for sixth months in a row…
US home prices fell for the sixth month in a row in December, as rising mortgage rates pushed prospective buyers out of the housing market, according to the latest S&P CoreLogic Case-Shiller US National Home Price Index, released Tuesday.
Sadly, home prices will likely fall quite a bit more in many areas if the Federal Reserve keeps raising rates.
Higher rates are also really hurting the auto industry, and Zero Hedge is reporting that one of the most prominent subprime auto lenders in the entire country has just collapsed…
Well, after a lengthy period in which nothing seemed to happen, suddenly the dominoes are starting to fall, and as Bloomberg reports, used car retailer and subprime auto loan lender, American Car Center, told employees the business was closing its doors, just one day after the company had hoped to pull off a funding Hail Mary by selling a $222 million bond (it failed).
According to Bloomberg, the used car retailer, which targets consumers regardless of their credit history (and thus targets almost entirely subprime borrowers who can’t get a loan elsewhere), said in an email to employees on Friday the firm was ceasing all operations, closing its headquarters in Memphis, Tennessee, and that all employees would be terminated by the end of the business day, the people said. It employed about 288 people at its headquarters.
Yes, the dominoes are certainly starting to tumble.
But at least things in the U.S. are still better than they are over in Europe.
Right now, consumers in the UK are literally fighting over cucumbers as the nationwide rationing of fruits and vegetables starts to become extremely painful…
A supermarket shopper has described ‘customers fighting over the last box of cucumbers’ on the first day that Aldi and Tesco imposed rationing on some of its fresh produce. The two retailers announced limitson purchases of certain fruit and vegetables on Thursday.
It followed similar moves from Morrisons and Asda, with four major supermarkets now limiting the number of items people can buy across items such as peppers, cucumbers and tomatoes. The temporary measures are in response to a nationwide shortage of some fruit and veg.
And food prices in the UK continue to spiral completely out of control…
A measure of UK grocery price inflation soared to a record high this month — that’s more bad news for consumers already facing a shortage of fruit and vegetables that has led to rationing at major supermarkets.
Grocery prices rose 17.1% in the four weeks to February 19, compared with the same period a year ago, according to data published by Kantar Tuesday. That’s the highest rate of inflation since the data company started tracking it in 2008, and is equivalent to adding an extra £811 ($980) to a household’s average yearly grocery bill.
Unfortunately, what we are facing is a global crisis.
Economic conditions all over the planet will deteriorate in the months ahead, and so I would encourage you to brace yourself for a tremendous amount of economic turbulence.
Because it is coming, and at this point there is nothing that our leaders can do to stop it.
For such a long time, central banks and politicians all over the world tried to cheat the system.
But in the process they made our long-term problems even worse.
Now a moment of reckoning is here, and every man, woman and child on the entire planet will feel the pain.
About the Author: My name is Michael and my brand new book entitled “End Times” is now available on Amazon.com. In addition to my new book I have written six other books that are available on Amazon.comincluding “7 Year Apocalypse”, “Lost Prophecies Of The Future Of America”, “The Beginning Of The End”, and “Living A Life That Really Matters”.
Read the full bio here.
This article was originally published in The Economic Collapse blog on Feb 28, 2023, with the title “Brace Yourself For Extreme Economic Turbulence”. The views expressed are the author’s, and do not constitute an endorsement by or necessarily represent the views of On Aviation™ or its affiliates.
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