Chapter 1: What is the main topic discussed in this episode?
Today's number, 39. That's the percentage of Republicans who think Trump would beat them in a physical fight. That is according to a new poll from research firm YouGov. And in other news, celebrations at YouGov after winning the Pulitzer Prize for best survey question ever. Welcome to Profiteer Markets. I'm Ed Elson. It is May 13th. Let's check in on yesterday's market vitals.
The S&P and the Nasdaq fell after the latest inflation reading came in higher than expected. We'll talk about that shortly. Oil prices continued to rise as tensions between Iran and the U.S. remained elevated. Treasury yields also climbed. And finally, the Senate confirmed Kevin Walsh as Fed governor, clearing a major hurdle toward becoming Fed chair. Okay, what else is happening?
Inflation soared in April, up 3.8% from a year earlier. That is the highest inflation reading in three years, and even hotter than economists had expected. Energy accounted for 40% of the month-to-month increase, and was up 18% from a year earlier, but price pressures are spreading beyond fuel. Core inflation, which excludes food and energy prices, climbed 2.8% from a year ago.
And for the first time in three years, wages are no longer keeping up with prices, which essentially means that real wages are falling. So here to discuss these numbers and the state of the economy, we're speaking with our friend Justin Wolfers, professor of economics and public policy at the University of Michigan and founder of Platypus Economics, his new YouTube channel, Substack, and podcast.
Justin, welcome back to the show. Let's get right into these numbers. Inflation up 3.8%. year over year in April, core inflation up 2.8%. This seems to me to be the worst reading we've seen in a long time. I guess the question is, how bad is it?
Ed, just hearing you go through those numbers caused the worry lines to itch a little deeper right now. And I was in a good mood before I started talking to you. Two things are true. This is a high inflation read. The cost of living is rising. It's rising sharply. People are finding it hard to keep up. The affordability crisis is real.
The second thing's true is none of this is yet deeply problematic. So let me back up. There's two inflation measures you just pointed to, Ed. One was headline inflation. That answers a specific question. If I care about the cost of living, what happened to the cost of living? That's it. It rose.
And so if you feel like you're not keeping up, the truth is when you're paying $4 a gallon, you're not. Second question is what's going on with the future of inflation? And that's where economists tend to look at core inflation. We exclude food and energy. Food goes up and down with droughts and avian flu and stuff like that. Energy goes up and down with strife in the Middle East.
And so neither really capture the underlying inflationary momentum or the inflationary psychology. And that at 2.8% is lightly uncomfortable, but not miserable. A question and perhaps the question over the next few months is how much will we be able to keep this as an energy crisis Iran temporary story? Remember, there's still some tariff business going on.
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Chapter 2: What are the latest inflation numbers and their significance?
American financial situation. I don't think about anybody. I think about one thing. We cannot let Iran have a nuclear weapon. That's all. That's the only thing that motivates me.
Your reactions to that clip? Actually, I thought it was going to be much worse. What a relief. Look, let me start by agreeing with the president. I think it's probably immoral to go to war in order to deliver low gas prices. I don't want him to walk around doing that.
Chapter 3: What factors are contributing to the current inflation crisis?
I think the stakes of war are so much larger. They're human. Gas prices is narrow, short-term, small and selfish. What I noted, though, is the mission changed, which is originally we were going in there to free the Iranians from the yoke of oppression, that all we wanted was regime change. And we did, in fact, get rid of Ayatollah Khomeini, which is why we now have instead Ayatollah Khomeini
I understand there's a vast difference between the two. So scoring this war is so damn difficult because the president refuses to say why we're there. Having said that it's okay for him not to be laser focused on what this does to the cost of living for Americans, let me come back and give the other side of that. I do think the stakes, if we're talking about the freedom of 90 million people,
or the possibility a crazy regime may bomb us to smithereens, those stakes are just enormous. And I'm happy to pay a little more at the pump if those are what we achieve. I want to be clear so far, we've achieved nothing, right? So we, at the start of the war, the Strait of Hormuz was open, we had Ayatollah Khomeini and the Iranians had nuclear material.
The Strait of Hormuz is closed, they have Ayatollah Khomeini and... They still have nuclear material. So whatever the – I don't feel any sense of why my life's better here. I think the reason people have a right to resent this is the president never tried to make the case to the American people, here is an important and noble goal from which I'm going to ask sacrifice.
He seems constitutionally incapable of asking for sacrifice. Sacrifice is a thing that populations do when they're considering war. That's an adult, grown-up, mature conversation. Just like saying, I'm going to start a tariff war and prices aren't going to rise, is an immature lie. You might think there's a serious argument to be had about defending American manufacturing or some argument.
It's not my argument. There'll be some costs and there'll be some benefits, but I think this leads to a better world. That's a mature conversation. Not even having the conversation before putting Americans' prosperity, livelihoods, and in some case, children at risk.
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Chapter 4: How does Justin Wolfers interpret the recent inflation data?
It's not my way of doing things, man.
When we think about what's happening with inflation here, and you mentioned the difference between core inflation versus overall inflation. We strip out food, we strip out energy because it's volatile. You know, it can skew the data in a lot of ways. And Trump has kind of made this argument where he says that the increase in oil prices and fuel prices is fake inflation.
Like, it's a different thing. And on the one hand, you can kind of make that argument, but on the other hand, it's like, we're still at war here and there's no indication that this is going to end anytime soon.
And in fact, the more that they keep on telling us a deal is about to happen, we're about to get somewhere, there's going to be a ceasefire, and then suddenly it doesn't happen and it happens over and over and over again, it starts to become kind of clear, at least to me, that this is going to last for a very, very long time.
And it starts to look a lot like Iraq, it starts to look a lot like Afghanistan, where they said it was going to be a couple of weeks, it was going to be a couple of months, and then it ended up being eight years, or it ended up being two decades. And so it seems as though a very similar situation could play out here. where we're telling ourselves that it's transitory.
Like we said a few years ago, we're telling ourselves, oh, it's just for now. It's fake inflation. It's just for now. It's just the fuel because the straight-up hummus is just blocked up for the time being. I'm not sure I believe that anymore. And it starts to seem as though the 3.8 number could be something that lasts for a very long time.
And I wonder if that would have a structural effect on the economy and potentially on markets as well.
And I have a memory that at the very start of the war I came on your show and I said everything that economic theory and history tells me is that there's a very large risk this takes a lot longer than four to five weeks and almost no chance it takes less and that there's a long history of excess optimism at the beginning of wars.
And that a more realistic assessment should be that it was likely to be far longer with a far greater economic cost. I take no great pleasure in being right. I just want to remind you I was. The food and energy, let me say two things about it. One, you know, we take it out for the reasons I described earlier, which is if you want to just, we leave it in for the reasons I described.
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