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It's official. Inflation will be a major issue in November

Biden will likely purposefully obfuscate when it comes to the question of inflation.

While there is still long way to go in what will be the longest general election process in U.S. political history, it would appear now that illegal immigration and inflation will be critical in determining who a dwindling base of swing voters will choose to be our president this November. And although it would seem difficult if not impossible for President Biden to hide from his record on immigration (I eat breakfast 30 yards from 3,000 "newcomers" at New York’s Roosevelt Hotel), there is likely to be some confusion and purposeful obfuscation when it comes to the question of inflation.

As someone who runs a Wall Street research boutique focused on economics, investment strategy, and policy issues, I know that the debates regarding the inflation question for investors are far from settled. The Fed has to be fair, made progress in bringing the rate of inflation down. But given the fact that there has been virtually no coordination between fiscal and monetary policy when it comes to deal with price increases, new inflation data like Tuesday's hotter-than-expected Consumer Price Index show that any victory laps or chest thumping from the Fed or politicians about the end of inflation are very likely to be short-lived.

Like it or not, Biden era spending and stratospheric budget deficits mean that there is nothing his campaign can do to escape blame for the fact that the average person’s standard of living has deteriorated during his term. We estimate that average working person’s standard of living has deteriorated by about 7% since 2021.  

How do we determine that? Tired of the variety of overly baroque ways in which fellow economists would twist inflation data to show that the rate of inflation is no longer something people, especially voters, need to worry about, my firm created what we call our Common Man Consumer Price Index to measure the rate at which the cost of things people must buy are increasing while excluding the costs of things people might want to buy. 


We believe this is important due to the way economists and other expensive experts quote and discuss inflation – or the pace at which prices are rising.  The most well-known and widely quoted inflation statistic is the one released by the Bureau of Labor Statistics (BLS), an arm of the Department of Labor, this morning at 8:30am.  Every month, the BLS releases an estimate of the increase in prices of a large and fixed basket of goods practitioners call the "headline" number.  It also releases an estimate of what they deem "core inflation" which excludes sometimes volatile food and energy prices.


Although it is not meant to be, the taxonomy of the "core" measure is more than a little ironic for the average working man or woman for there is no one I know for whom eating and staying warm is not "core."  Recognizing the absurdity of this measure for someone living on planet Earth, my firm and I endeavored to create our Common Man CPI that is only made up of food, energy, housing, clothing insurance, and utilities – i.e. the things one must buy to survive and raise a family.  Looking at inflation this way and it becomes clear that wages and benefits can not rise fast enough in the next eight months to obscure the fact that the working men and women of this country are worse off than they were on inauguration day in 2021.  Prices could actually decline to even things out, I guess, but what economists call deflation only takes place that quickly in the presence of an economic catastrophe and economic catastrophes have been notoriously unkind to incumbents.  As it stands now, our Common Man CPI has outpaced the BLS’ headline number for seven consecutive months and 30 of the 35 months since Joe Biden’s inauguration.

The rationale for looking at inflation in this way is simple – many of the economic policies adopted by both parties over the past 25 years have been enormously regressive – meaning that they have been great for relatively wealthy college-educated people but terrible for everyone else. The most obvious examples have been "free trade" with a country like China which fixed its currency at below market rates and the practice of "quantitative easing" by the Fed which artificially suppressed interest rates. The first movement robbed the middle class of jobs, the second of interest income. Capital greatly outperformed labor and the most indebted outperformed the prudent man.

Although no one in the academic economic community would ever admit it, these wayward policies were undoubtedly responsible for the rise in the political power of the "forgotten man" and his political representatives like Donald Trump and Nigel Farage. Incredibly, the political elite seemed to have learned nothing from the appeal of Mssrs. Trump and Farage, labeling those who question the authority of experts who are so often wrong as a "basket of deplorables."  Regardless of what some academic might tell you, if you feel that your take-home pay can’t keep up with inflation – you’re right.

Jason Trennert CEO and Chairman of Strategas Research Partners. The firm is an institutional brokerage and advisory firm serving clients in 45 states and 25 countries around the world. Strategas has launched two ETFs (SAMT & SAGP) to allow individual investors to benefit from the research they provide for institutional investors.

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