Economists insist inflation is cooling. Americans don't buy it.

There's a difference between what academics say and how it impacts wallets

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Happy Friday eve!

The Fed released its Beige Book survey of regional business contacts on Wednesday.

One thing that stood out to me was how it highlighted consumers pushing back against inflation, and the general increase in price sensitivity.

That said, there’s a glaring difference in what inflation means to the Fed and policymakers, versus everyone else.

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‘Everything feels more expensive’

I’d be a very wealthy guy if I earned a buck every time I heard someone say that in the grocery store this year.

And yet, if we take government data at face value, inflation has indeed fallen from its 40-year peak of 9.1% two years ago to 3.4% now. 

This data is hard to square for anyone who shops for eggs, coffee, meat, and orange juice — all of which do in fact cost more today than before the pandemic. 

That leaves academics, economists, and politicians sounding tone deaf when they tout “cooling inflation.”

Outside the Ivory Tower, few people take comfort knowing prices are climbing slower than before, but still increasing nonetheless. 

It doesn’t take a columnist to point out that everyday Americans care less about the rate of price changes than they do about how expensive things are now, compared to the past. 

Consider the chart below from Axios.

Consumer prices have climbed 19.3% in total since Joe Biden entered the White House — even though the official inflation rate is a fraction of that.

Source: Axios

For food spending specifically, prices are up 20.8%, while inflation for the same category is up an innocuous-sounding 1.1%.

Cumulative price gains combined with the Federal Reserve’s high interest rates have pushed credit card usage and delinquency rates higher over recent months, and sentiment lower.

The New York Fed reported total household debt increased by $184 billion in the first quarter of the year, 1.1% more than the end of 2023.

To that point, a Fed survey released this month found 22% of Americans believe the US economy is in good or excellent shape. 

Before the pandemic, that figure hovered at about 50%.

And even though the latest Consumer Confidence report ticked higher in May, respondents’ expectations for inflation in the next 12 months actually worsened. 

That pessimism has seeped into financial markets, too.

Treasury yields have spiked over the last several days as demand for bonds has slipped and the policy outlook remains shaky.

The only way officials can hope to get on the same page as Americans is to drop the academic jargon when they talk about prices.

But I wouldn’t put my money on it — better save it for groceries.

*At a glance:

*Data as of Wednesday 9:30 p.m. ET

Elsewhere:

  • The Dow has dropped 1,500 points in two weeks. UnitedHealth stock, for one, has dragged the index lower since its peak close on May 17. Other top components including Caterpillar, Amgen, Visa, and McDonald’s haven’t helped either. (Barron’s)

  • Traders are betting big on Nvidia. One leveraged ETF that gives investors two times the daily return of the chipmaker has seen demand surge. NVDL has gained 450% since launching, versus Nvidia’s 196% gain. (Bloomberg)

  • This MIT economist isn’t bullish on AI. The tech is the talk of the town, but a new study suggests AI-led US GDP growth in the next 10 years will rise about 1%. That’s a fraction of what Goldman Sachs expects. (Business Insider)

Rapid-fire:

  • ConocoPhillips will acquire Marathon Oil for $17.1 billion (WSJ)

  • The British Pound has hit a 21-month high (FT)

  • Activist investor Nelson Peltz exited his Disney stake (Barron’s)

  • Covid-era homebuyers are about to see a huge rate increase (Bloomberg)

  • Goldman Sachs has amassed more than $20 billion to invest in private credit (FT)

  • Salesforce stock plunged after it issued a weak outlook (WSJ)

Last thing:

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