Let’s update some inflation-related information.

First of all, real hourly wages for non-managerial personnel increased by less than 0.1% in April. They are up about 3% from just before the pandemic, and also up a little over 1% since their June low last year:

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Note the graph above is normed to 100 as of the long-time previous high for wages in January 1973.

Next, real aggregate payrolls for non-supervisory workers tell us how much money the middle/working class is earning in total, adjusted for inflation. This declined -0.1% in April, but is 4.4% above its pre-pandemic level:

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But the overall trend remains a very slow increase. Here’s what the YoY% change looks like historically:

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Note that when real aggregate payrolls go negative, that has *always* been a coincident indicator of recession. At 1.7% higher YoY, this is about average for previous expansions and is an important positive sign.

Digging a little deeper into the CPI report, aside from shelter, the big YoY increases have been in food (13.5% weighting of the total, unchanged in the last 2 months but up 7.7% YoY, down from a peak of 11.3% last August); new cars (4.2% weighting, down -0.2% in April, but up 5.4% YoY vs. a peak of 13.2% in April last year); and something called “transportation services,” (5.9% weighting, down -0.2% in April, but up 11.1% YoY, down from 15.3% last October).

So, exactly what are “transportation services”? Here’s the detailed breakdown from the CPI report:

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The two big items are motor vehicle insurance and repairs. This is telling me that we still have a bottleneck in vehicle parts, which are impacting both the manufacture of new cars and the repair of older ones - especially since so many people are holding on to their older cars, given the prices of the new ones.

Finally, the producer price index for raw commodities rose 0.1% in April, after declines in both February and March. Producer prices for final demand goods rose 0.2%. If this sounds well-contained to you, that’s because it is. YoY commodity prices are down -3.0% and finished goods prices are up only 0.8%:

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An important difference between the PPI and the CPI is that there is no “shelter” component in the former. Below are two long-term graphs of both producer and consumer prices, ever since the end of WW2:

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With the notable exception of the 1980s and 1990s, when the workforce was swelling both due to the entry of the Boomers and women, a downturn in YoY producer prices has always resulted in a deceleration of consumer prices as well. Since our present period most resembles the immediate post-WW2 Booms through the Korean War, as well as 1981-82, when the Fed continued hiking rates into a decreasing inflationary environment, this argues strongly that consumer prices will follow producer prices this time as well, despite producers’ efforts to maintain their recent price hikes in consumer products.

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