October 10, 2022

We’ve been told inflation is at a 40-year high. That’s bad enough, but if it’s calculated using traditional methods, the outlook is even worse.

At the end of June, the Consumer Price Index (CPI) stood at 9.1%. That was the biggest 12-month price increase since November 1981. July’s reading was slightly lower (8.3%), though still one of the highest CPI numbers in decades.

It’s important to note that in 1983, the government significantly changed how it calculated the CPI for goods and services in ways that understated inflation going forward. This was done to account for a changing consumer landscape. Using prior methods, inflation today would stand at more than 12%. And some forecasters think true inflation is closer to 15-16%.

The largest CPI reading on record is 14.8%, back in March 1980. So, current levels don’t look so bad by comparison. But is that assessment valid?

We’ve also been hearing good news on employment. And look, it sounded great announcing 526,000 jobs in July and 315,000 jobs in August. President Biden alluded to those gains as being part of a fast, strong recovery. But in reality his administration is reaping the rewards of a depressed market because he took office after the biggest decline in American employment history.

From February-April 2020, the economy shed 22 million jobs. In the nine months following, business re-openings brought back 12.5 million of those jobs. In the 18 months President Biden has been in office, 9 million more jobs have been added. Yet we’re still below the pre-pandemic employment peak.

No matter what the news says, the harsh reality right now is consumer finances have deteriorated at the quickest pace ever and employment is slowing. To me, this all makes a recession more likely, if we’re not already in one.