Well I don’t know the answer of course but in light of having re-read Neel Kashkari’s “Why I Dissented Again” entry I thought I might as well throw in what little bit of data spelunking I have done. I doubt this is something brand new to the serious brains @MinneapolisFed and other institutions but on the off chance that they or someone else was curious I thought I would put it here as well.
The post talked about the disconnect between the rising numbers of people joining the workforce (shown in falling unemployment) and a core inflation rate that refuses to rise as would be expected when more people have more employment income.
My own wandering mind settled on the following information:
Compound Average Growth Rate Q2 over Q2 (2013–2017). The numbers come from the Bureau of Economic Analysis, specifically their Personal Income and Disposition dataset.
The story being shown is a simple one and best told in bullet points (my favourite!)
1. The pace of increase in disposable incomes has slowed down considerably in the last 2 years)
2. Total amount of expenditure (Outlay) continues rise steadily. Together with the slowing rate of growth in disposable incomes, this means a declining rate of savings which is shown in the last line of the table
3. The rate of consumption continues to outpace disposable income growth
4. The amount of money spent on interest payments is not only rising 3x faster than incomes and almost 1.6x as fast as consumption but it is increasing quicker than almost anything else (Note: transfer payments are growth faster but they are a tiny tiny portion of total outlay)
The conclusion is this. Core inflation continues to fall even though more people are joining the workforce because more and more of the money US workers are earning is going to pay of the debt they accrued when rates were lower. Remember those stories about x% of people couldn’t handle a y% rise in rates? I would say this is the manifestation of that.
I guess what I am trying to say is…
...kinda.
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