Dec 19, 2022

November's inflation numbers.

Plus, how much Russia really influence our elections?

I’m Isaac Saul, and this is Tangle: an independent, nonpartisan, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 12 minutes.

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We're covering November's inflation numbers. Plus, a reader question about how much influence Russia actually has on our elections. 

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Quick hits.

  1. The House's January 6 Committee will hold its last public hearing today and is expected to make non-binding criminal referrals for a number of individuals. (The committee)
  2. Russian officials warned "unpredictable consequences" in response to news that the U.S. was sending advanced technology to Ukraine to repel missile attacks. (The warning)
  3. Twitter CEO Elon Musk reinstated the accounts of some journalists who were banned on the platform after purportedly violating a new doxxing rule. Twitter also reversed a rule that banned the sharing of links to other social media platforms. Musk then lost a user poll asking whether he should step down as Twitter CEO, and has promised to abide by the results. (The poll)
  4. Three men convicted of supporting a plot to kidnap Michigan Gov. Gretchen Whitmer (D) were sentenced to multiple years in prison. (The sentence)
  5. The Senate passed a one-week government funding bill to avoid a government shutdown and is expected to introduce a full omnibus bill on Monday. (The agreement)

Our 'Quick Hits' section is created in partnership with Ground News, a website and app that rates the bias of news coverage and news outlets.


Today's topic.

Inflation. Last week, the Labor Department released its November inflation numbers, showing that inflation had once again slowed month to month and year over year. Reminder: Inflation is measured by the Consumer Price Index (CPI), which is designed by the Bureau of Labor Statistics to measure price fluctuations for urban buyers, who represent the vast majority of Americans. The CPI tracks 80,000 items in a fixed basket of goods and services, representing everything from gasoline to apples to the cost of a doctor's visit.

Last month, consumer prices rose 7.1% from a year ago, down from 7.7% in October and the peak of 9.1% in June. On a month-to-month basis, inflation rose just 0.1%. Core CPI, which excludes more volatile food and energy costs, was up 0.2% from October to November, the lowest month-to-month increase since August of 2021. All of these numbers came in lower than economists expected, which spurred a momentary stock market rally.

These numbers are the strongest evidence yet that inflation is slowing from the increase that began about 18 months ago, while resulted in a 40-year high earlier this year.

Gas, health care, airline fares, hotel rooms, electricity, and furniture all saw prices fall in November. New car prices stayed the same, while housing costs were up. However, the housing data is a lagging indicator, and real-time measures actually show home prices and apartment rentals falling. Meanwhile, grocery prices continue to rise, up 0.5% from October to November and up 12% from a year ago.

“Inflation was terrible in 2022, but the outlook for 2023 is much better,” Bill Adams, chief economist for Comerica Bank, told the Associated Press. “Supply chains are working better, business inventories are higher, ending most of the shortages that fueled inflation in 2020.”

The same day the numbers were released, the Fed raised interest rates again, by another 0.5%. (Reminder: Interest rates represent the cost of borrowing. When the Federal Reserve raises interest rates, it makes credit card debt, mortgages and loans more expensive. The Fed uses interest rate hikes to slow spending and investment in order to tamp down inflation.)

Fed Chair Jerome Powell has bucketed inflation into three trends: The core CPI (excluding food and energy), housing costs (which make up about one-third of the CPI), and services unrelated to  housing like education or auto insurance. Powell notes progress in goods and housing but says inflation in other services has remained high, which is a trend that continued in the latest report. He says real-time drops in apartment rents and home prices should start showing up in government data next year.

We first covered inflation in October of 2021, and have covered it nearly every month since. You can find all our previous coverage here.

Today, we're going to take a look at some reactions to the latest numbers, then my take.


What the right is saying.

  • The right is still worried about inflation, and hopes the Fed keeps increasing rates.
  • Many pan the White House for its optimistic response, given the larger historical context of this moment.
  • Some still worry about a worst-case scenario in the global economy.

The Wall Street Journal editorial board said inflation is not vanquished yet.

"The market hope is that the Federal Reserve will end its interest-rate increases sooner than expected, but that would be a mistake as the report shows the anti-inflation fight is still far from over... a 7.1% increase in prices is still a long way from victory, and inflation continues to be sticky across much of the economy," the board said. "Food rose 0.5%. Much of the decrease came in energy prices, which are volatile, and fell by 1.6%. But service prices excluding energy services rose 0.4% and are up 6.8% in the past year. The core CPI less energy and food rose 0.2% in the month and is still high at an annual rate of 6%.

"Wage increases will also give the Fed pause, as a separate Labor Department report Tuesday showed a 0.5% increase in real wages for the month. That’s welcome news for workers who have seen a 3% decline in real average weekly earnings in the past year as a result of inflation. But it also signals that workers and employers are playing catch-up, and there are still 10 million unfilled jobs," the board said. "The Fed’s temptation will be to think that slower growth can do the heavy anti-inflation lifting. But the challenge for the Fed isn’t getting inflation down merely to 4% or 5% as a new baseline for the next interest-rate cutting cycle. Then inflation will rise again."

In Fox News, EJ Antoni said nobody should rejoice over the still-awful inflation numbers.

"If you listen to the White House, the latest inflation data is cause for celebration, like an early Christmas gift to America. Yet nothing could be further from the truth. Inflation is still crushing American families, and there’s no financial cause for rejoicing—a sad situation during the holiday season," Antoni said. "The administration’s claims to be winning against inflation fly in the face of their own data. Since Biden took office, prices have risen 13.8 percent. In fact, prices have risen so much faster than wages that the average family has lost $5,800 in real annual income (i.e., what their incomes can actually buy). Conversely, real incomes rose $4,000 under President Trump.

"Add on to that the increased borrowing costs resulting from higher interest rates, and the average family is effectively $7,100 poorer today than when Biden became president," Antoni said. "Yes, 7.1 percent inflation is better than 9.1 percent, but it’s surely nothing to brag about. At the current 7.1% pace, prices will still double in about a decade. That is a horrific rate of inflation, and it’s breaking the back of the middle class. Now the same president who told us inflation was transitory is predicting that it will be gone by the end of next year. Biden is always wrong, but never in doubt. The statistics from his own administration do not support that prediction at all.

In CNN, Steven Kamin said the Fed could be facing a nightmare scenario.

"With price growth still drastically above normal levels, labor markets quite tight, and household spending resilient, the Fed’s challenges are far from over. As we move into 2023, inflation will continue to be a key risk to both the US and foreign economies… US inflation has moved down a bit since its peak earlier this summer, but this importantly reflects declines in energy prices. So-called 'core' inflation, which excludes volatile energy and food prices and thus provides a more reliable reading on price trends, has largely moved sideways over the course of this year," Kamin wrote. "The base-case scenario for most forecasters is gloomy, but not catastrophic: US inflation moves down gradually over the next year, driven by supply-chain disruptions easing, energy and other commodity prices falling and aggregate demand softening.

"There is a much more worrisome scenario, however, in which US inflation remains stubbornly high, perhaps because the combination of continued tight labor markets and elevated living costs fuel persistent rapid wage growth," Kamin said. "Such a wage-price spiral would pose a difficult conflict between the policy needs of the US economy and those of the rest of the world. Further increases in interest rates would be essential to bring down US inflation and inflation expectations. But at a time when many of our trading partners were mired in recession, further policy tightening could create grave problems abroad: substantial job losses, widespread defaults and disruptions in international financial markets."


What the left is saying.

  • Many on the left are optimistic the Fed is winning, and some say we can start easing up on rate increases.
  • Some argue a "soft landing" is still possible.
  • Others say the Fed could stop rate hikes now, but it won't.

Bloomberg's editorial board said the Fed's "soft landing" for the economy might still be possible.

"Tuesday’s inflation report had persuaded some investors that the central bank could afford to lighten up on monetary policy. Prices excluding food and energy rose by 6% in the year to November, down from 6.3% in the year to October. For the second month running, that was a greater decline than expected. Signs of subsiding inflationary pressure were also apparent across a wider range of price components," the board said. "Taken together, such data suggests that price increases have peaked. Yet the Fed is right: It’s too soon to say that the inflation rate is securely on course back to its target of 2%. In his remarks on Wednesday, Chair Jerome Powell stressed that the labor market is still tight. Companies report a 'huge' overhang of vacancies, he said: It’s as though the economy is facing a 'structural labor shortage.'

"If things continue to unfold as it predicts, the bank will deserve to be congratulated on a job well done, despite its admitted error in failing to start raising interest rates sooner. One other point is worth noting. Powell was asked during his press conference whether the Fed might consider changing its inflation target if getting back to 2% proves too difficult — an option that some economists advocate. The chairman dismissed the idea briskly," the board said. “This was something the Fed hadn’t discussed and wouldn’t discuss, he said: The inflation target is 2% and that’s that. If core inflation threatens to settle between 3% and 4% next year, he can expect to be pressed more aggressively on the matter. Yet here, too, Powell is right. Things are roughly on track because nobody doubts the Fed’s commitment to a low inflation rate. If that changes, all bets are off."

In MarketWatch, Rex Nutting said the Fed should pause its interest rate hikes now (but he knows they won't).

"With the relatively benign report on the consumer price index in November released on Tuesday, the Fed now has ‘compelling evidence’ that it has achieved its immediate goal of seeing a significant slowing in inflation," Nutting wrote. "The CPI report was actually better than it’s being portrayed by the media, which continue to focus irrationally on year-over-year changes in inflation rather than looking at what has happened since the Fed began raising interest rates nine months ago... In March 2022, when the Fed first raised rates, inflation was accelerating. From January to March, the CPI had risen at an 11.3% annual rate. That was an alarming inflation rate which called for action by the Fed.

"But then the Fed raised interest rates at six straight meetings, going from near zero to near 4% and now inflation is decelerating. From September to November, inflation rose at a 3.7% annual rate. The progress is much less apparent when the figures are reported on a year-over-year basis, as most media outlets do. From November 2021 to November 2022, inflation rose 7.1%–but that figure is meaningless to our understanding of what the Fed has accomplished because that time frame also includes five months of high inflation from before the Fed acted," Nutting said. "Because rate hikes take some time to have an impact on prices and on the economy, they didn’t really start to bite until July. In the five months since then, inflation has slowed to a 2.5% annualized rate, noticeable to anyone who’s looking."

In The Washington Post, EJ Dionne Jr. said he hopes the Fed considers easing up on interest rate hikes soon.

"I was among those who did underestimate the immediate threat of inflation in early 2021, so I salute those (notably former treasury secretary Lawrence H. Summers) who warned us about what was coming. But in light of Tuesday’s Bureau of Labor Statistics report showing that inflation slowed more sharply than expected, I also want to make the case that we doves made the right mistake — meaning that we were right that this inflation is quite different from earlier bouts," he wrote. "At the risk of oversimplifying, inflation hawks examine our situation and see something approaching the situation of the 1970s: inflation roaring out of control and in danger of becoming embedded in the economy. The result back then was stagflation, the worst combination of economic sluggishness with rising prices.

"But it’s not the 1970s anymore. Jared Bernstein, a longtime adviser to President Biden and a member of the White House Council of Economic Advisers, points to three big differences. First, the inflation of the ’70s was driven by big oil price shocks from the Middle East. The United States is now far less dependent on Middle Eastern oil. Second, unlike now, unions were still strong in the 1970s, and many contracts contained cost-of-living increases that created an upward wage/price spiral," Dionne Jr. wrote. "The third difference: The Federal Reserve has a much better understanding than in earlier years of the 'underlying mechanisms of inflation,' Bernstein said. So here’s hoping that policymakers, including Powell, don’t let fears of the 1970s kick away real economic gains in the early 2020s."


My take.

Reminder: "My take" is a section where I give myself space to share my own personal opinion. It is meant to be one perspective amid many others. If you have feedback, criticism, or compliments, you can reply to this email and write in. If you're a subscriber, you can also leave a comment.

  • I'm more optimistic now than at any point in the last 18 months.
  • Still, economists got a lot wrong in the last, and there are several variables at play.
  • Going forward, I'm starting to question how much inflation really matters to voters.

Throughout the inflation debate, I've kept most of my responses pretty muted. Predicting the future is hard enough in politics, but in economics, it seems damn near impossible.

It's worth remembering that around this time last year, most economists were saying inflation had already peaked, and predicted the Personal Consumption Expenditures index would be running at about 2.5% by the end of 2022. It's running at above 5%, more than twice that. Many economists missed the picture last time in part because of supply chain issues and the war in Ukraine. We have a clearer understanding of those issues, but similarly, more disruptions to the supply chain (because of, say, a major Covid outbreak in China) or other global events (like spillover of the war in Ukraine) could upend any inflation predictions quickly.

This makes it tough to fully endorse what many economists think now — which is that inflation has peaked, will keep coming down, and a soft landing might be possible.

In the last couple months, I've become more convinced of one of my previous positions and much less sure about another.

I'm more convinced that inflation is a legitimate threat that needs to be stamped out, and that we should continue with interest rate hikes until we're 100% sure it's behind us. The impact of the interest rate hikes is really starting to be visible on a consistent basis in the data, which is great. It means this approach is working, and working in tandem with our efforts to slowly hammer the kinks out of our supply chain.

The Fed has inflation on the ropes, so they should keep pounding it until we are certain it's finished. As much as people fear a deep recession or significant economic damage, it's also clear the labor market is still tight, wages are still strong, and we still have an opportunity for the coveted "soft landing" (where inflation comes down without setting off a major recession).

At the same time, I'm less convinced of how much inflation matters to voters. Or, at least, how much they blame our current administration for it. In our Friday edition, Democratic strategist Simon Rosenberg made the case to me that inflation is simply an exaggerated story. His argument was appealing in its simplicity: If inflation had been impacting Americans as much as the media said it had, Democrats would never have had the performance they just did in the midterms. And even if inflation had been a real issue for voters, Democrats would not have done as well in the midterms if voters were blaming Biden for it.

Either way, the politics of this latest report are great for the Biden administration. Inflation is still too high, but we now have several consecutive months of encouraging numbers with all sorts of other indicators that it’s on its way down. On top of that, most of the focus is on the Fed now, not the Biden’s administration’s policies. Personally, we've been covering this story for over a year, and this is the most optimistic I've been that there is light at the end of the tunnel — and that the folks "in control" at the Fed are doing a good enough job to get us out of this mess without a major recession.


Your questions, answered.

Q: Russia's effect on American politics: Specifically, how much of an effect do they have? Do we actually know? Is this media hype or do they rig some of our elections? If you are willing to cover this topic I would like to hear your thoughts.

— Miriya from Dayton, Ohio

Tangle: I think "rig" is the wrong word to describe any purported Russian influence in our elections. I’d personally never use that word to describe what Russian intelligence (it’s important to separate the Russian government from the citizenry, here) appears to do, which is create social media influence campaigns to change public opinion.

Here's what we are pretty certain Russian intelligence agencies do: On social media, they have bot networks to parrot Russian propaganda. They have created groups on platforms like Facebook to share political content and even organize political events that may influence public opinion. On the global stage, they try to mainstream decidedly anti-West and anti-American talking points. And, of course, we are fairly confident Kremlin-linked hackers helped access the DNC emails that were leaked by WikiLeaks heading into the 2016 race, the most notable of their recent operations.

Here's what we don't have any clear evidence of: That Russia has accessed our voting machines, changed any votes, compromised politicians, or otherwise "rigged" our elections in any meaningful way. Basically, Russia's "influence" amounts to fairly well-coordinated social media operations. But even those aren't necessarily about helping one candidate or the other — generally, Russia wants to sow political discord by creating chaos or amplifying actual fake news.

Unfortunately, I think "the media" both over-hypes this influence (on the left) and is too dismissive of it (on the right). Russia is pretty effective at widening our pre-existing partisan divides, but as it relates to elections, I think they are nowhere near as infiltrating as many Americans believe. It matters on the margins, yes. But it's also way less insidious than I imagine many Americans believe. When we think of “rigging elections,” we might be thinking of the overt ways America has meddled in the elections of other nations. Compared to those examples, what Russia has done is closer to child's play.

Want to have a question answered in the newsletter? You can reply to this email (it goes straight to my inbox) or fill out this form.


Under the radar.

Labor strikes are surging in the U.S. There have been 374 worker strikes in 2022, a 39% increase from 2021, according to a database from Cornell. These worker strikes have happened at some of the most high-profile companies in the world, including Amazon and Starbucks. They've been fueled by anger over working conditions during the pandemic and buffered by other labor wins — including a rise in unionization. Strikes were already on the rise before the pandemic, with a 17-year high in 2019. Axios has the story.


Numbers.

  • 49.1%. The increase in the price of eggs between November 2021 and November 2022.
  • 36%. The increase in the price of airfare between November 2021 and November 2022.
  • 13.1%. The increase in the price of energy between November 2021 and November 2022.
  • -3.3%. The decrease in the price of used cars and trucks between November 2021 and November 2022.
  • -23.4%. The decrease in the price of smartphones between November 2021 and November 2022.
  • $3.14. The current average price of a gallon of gasoline in the United States.
  • $3.30. The average price of a gallon of gasoline in the United States a year ago.

Have a nice day.

Christmas came a little early for Joy Milan. Joy is the owner of Taco-Bout-Joy's, a restaurant located in Glenview, Illinois. Apparently, the restaurant hadn't been getting the kind of traffic Joy hoped for. Her daughter, Isabel, shared a video on TikTok of her mom waiting by the door looking out for customers, but from inside, showing a totally empty restaurant. "It breaks my heart," she said in the video, adding that she wished she could give her mom some customers for Christmas. Well, the post struck a chord, racking up 38.5 million views and over 69,000 comments… and then a wave of new business, with lines out the door. TODAY has the story.


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Isaac Saul
I'm a politics reporter who grew up in Bucks County, PA — one of the most politically divided counties in America. I'm trying to fix the way we consume political news.