The latest consumer price index (CPI) numbers were released for November 2021.  The CPI went up 0.8% for November and now stands at 6.8% year-over-year.

The less volatile median CPI went up as well.  It increased 0.5% for the month of November.  Year-over-year, the median CPI is now up 3.5%.

If you take the CPI just from the last 6 months, the picture is even worse.  Annualized, it would exceed 7 percent.

Here is a bit of a rhetorical question.  When you get your annual raise at work, are you getting 7% or more?

My guess is that most people in the corporate world are not getting 7% unless it involves a promotion.  So it isn’t much of a cost-of-living raise since most people make less.  If you get a 5% raise with 7% price inflation, you are losing money.

If you actually do get a 7% raise (most don’t), then you are still behind because you pay taxes on the additional amount.  So you may actually need a 9 or 10 percent raise at your job in order to pay the taxes and keep up with the 7% cost-of-living increase.

Oh, and that doesn’t give you anything extra for your work experience.  Does it make sense that someone would make the same amount or less, adjusted for inflation, after working 10 years as compared to after working 5 years?

In some jobs this may make sense, but hopefully in most lines of work the employee becomes more productive as they gain experience.

So if you want to increase your after-tax income adjusted for inflation, then you better be constantly looking for promotions and job changes.  If you are an entrepreneur, you better find a way to deal with the increased costs.

Wall Street Shrugs

But according to the stock traders, inflation doesn’t really matter.  If anything, they prefer higher inflation.  It just means that stock prices can go higher.

The hotter inflation numbers didn’t stifle Wall Street.  The party goes on.  The stock bulls keep winning until they don’t.

With price inflation hitting highs not seen for about 4 decades, it should send signals to the Fed that price inflation is not transitory unless they make it so.  This means that the Fed has to stop creating new money out of thin air.

The Fed announced its beginning of the taper, which means it is now inflating at a slower pace than before.  But it is still inflating.  And the higher CPI numbers don’t seem to be scaring many investors as stocks continue to go up.  They don’t seem to be worried that the Fed might adopt a tight money policy.

There is also little concern that companies will be squeezed on their profits due to higher costs.

There is an economic fallacy that higher costs for businesses can just be passed on to the consumers.  Actually, if someone gets this far in their economic thinking, it is an accomplishment.

It is true to a certain extent that higher costs for businesses will push final consumer prices higher.  But there are limits to this, and higher costs don’t guarantee higher revenues.

If McDonald’s has to start paying $20 per hour in order to retain staff, while also paying more for food, then it will likely have to raise prices in order to be profitable.  But what if most people don’t want to buy a cheeseburger from McDonald’s if it costs them 5 dollars?  It may only be worth it at 2 dollars or less.  For more luxurious items, this is even more true.

In many situations, consumers are willingly paying the higher prices right now.  It is seen as a boom time, and people feel wealthy.  Unfortunately, they probably feel wealthier than they should, as some of it is an illusion.  Thank the Fed and the government for the massive misallocation of resources.

At some point, things will start to break.  Consumers will tighten up.  The acceleration of prices will hopefully retreat, but with it will come major economic pain.  Companies’ profitability – or lack of profitability – will be exposed.  Even the big tech companies aren’t immune to all of this.

We are in an Everything Bubble.  The higher CPI numbers reflect this.  The boom is unsustainable.  When it finally ends, it isn’t going to be pretty.