Treasury Secretary Janet Yellen shrugged off the latest hotter-than-expected U.S. inflation data, arguing that the financial markets made the “mistake” of concentrating on short-term blips rather than the downward trend of the consumer price index (CPI).
At the Detroit Economic Club alongside Gov. Gretchen Whitmer (D-Mich.), Ms. Yellen stated that the January CPI report was a “tad higher” than observers expected, resulting in a sharp stock market sell-off.
“I think it is a tremendous mistake to focus on minor fluctuations and to fail to see the longer-term and bigger trends,” she said. “The trend here is that inflation is moving decisively down.”
The annual inflation rate eased to 3.1 percent, higher than the consensus estimate of 2.9 percent. The core CPI, which strips the volatile food and energy sectors, was unchanged at 3.9 percent and higher than economists’ projections of 3.7 percent. In addition, the Federal Reserve’s preferred supercore inflation gauge, concentrated on labor-intensive services excluding housing and energy, climbed to 4.3 percent year-over-year.
The Dow Jones Industrial Average plunged by 1.35 percent, the Nasdaq Composite Index fell by 1.8 percent, and the S&P 500 Index dropped by 1.37 percent. Investors rushed into the greenback as the U.S. Dollar Index (DXY), a gauge of the buck against a basket of currencies, spiked toward the vital threshold of 105.00.
Inflation Is Normalizing
Despite the higher-than-expected inflation reading, Ms. Yellen said she is pleased with its downward trajectory.Although the United States endured a “burst of inflation” that climbed to levels the nation had not seen since the late 1970s and early 1980s, “inflation has now fallen almost to levels that are consistent with the” Fed’s 2 percent objective, she stated.
“We’ve had a two-thirds decline in inflation,” Ms. Yellen added. “Inflation, overall, is coming back down to normal levels where it’s not an issue to most people.”
The White House official noted that gasoline prices are below $3 at most gas stations nationwide.
Ms. Yellen also alluded to the spike in egg prices that have now “fallen back pretty close to pre-pandemic levels.” However, the average cost of a dozen eggs is $2.52, up 73 percent from before the COVID-19 pandemic. Additionally, although the price of eggs tumbled by 29 percent year-over-year in January, it has risen for four consecutive months on a month-over-month basis.
Ms. Yellen referenced real (inflation-adjusted) wage growth as a barometer of how inflation has stabilized and the U.S. economy has strengthened.
“Most importantly, wages have gone up. They’ve gone up quite a lot. They’ve gone up, especially for large amounts of lower-income workers,” she told Gov. Whitmer. “The statistic I find useful to summarize how things are going is that the median worker, if you compare today with 2019, the typical worker can buy exactly the same basket of goods and services and they have $1,400 left over to spend or save.”
Economists argue that the administration’s contentions that wages are outpacing inflation are misleading because they do not factor in the cumulative effect of the price pressures over the past three years. Officials are assessing short-term data as the growth rate of inflation has slowed and wage gains have swelled, experts have said.
By comparison, the CPI has risen by nearly 19 percent in this same span. This does not factor in the plethora of goods and services that have accelerated at a higher pace in the past three years.
Americans Feeling Good
In recent months, the American people have become more confident about the national economic landscape while still giving poor marks to President Biden in this area.“As inflation has come down and wages have gone up ... I think Americans are beginning to feel better about the economy,” Ms. Yellen said.
