Inflation, Interest Rates and Domestic Migration

The first two are connected, but the third?  In any event, “core” consumer price inflation, which supposedly strips out volatile items (all of which appear to be necessities that people have to buy) was higher than anticipated in today’s report.  Notable items were an uptick in shelter costs, which are bizarrely calcuated, but have a high weight in the index, and the ongoing laughable low number for medical cost and health insurance, which are rising at a much higher rate than show in this index.  The emptying of the national oil reserve is near an end, so gas prices will be heading up.  For the average person the cumulative effect of higher prices has left them much worse off and that isn’t going to slacken.  Please note that the cost of eating out continues to rise substantially, and I have noticed that restaurants are emptier.  This is a source of much employment and I anticipate we will see restaurants closing and cutting back, leading to weaker job growth.  (BLS Data)

If you believe that the money supply is the primary determinant of inflation rates over the long run, than you would have no reason to think it will significantly slacken in the US, quite the opposite.  Ongoing two trillion dollar federal budget deficits and the wild spending from previous bills like the hilarious inflation reduction act are forcing the US Treasure to crank up the money supply.  And if you think, as I do, that in the shorter run, various factors affecting supply and demand can predominate in near-term inflation, you would also see reason to expect likely higher inflation in coming months.  The bulge in new apartment construction is ending, and we have millions of new illegal immigrant households to accomodate, putting pressure on rents, as do the rise in insurance and other costs.  Farmers are under cost pressure.  As cheap fossil fuels are phased out, electricity and other utility costs are rising.  So don’t for a second believe that inflation will lessen.

Meanwhile credit card debt hits a new high despite extremely elevated interest rates.  Consumers are using credit cards to make up for lost purchasing power, but that can’t last long and delinquencies are also increasing.  As I have mentioned before and research supports, interest rates are themselves a component of inflation and a substantial burden for the average person who has a mortgage, a car loan and/or credit card or other debt.  The private issuers of debt aren’t buying the Federal Reserve’s attempt to lower rates; they know inflation isn’t going away and that repayment risks are rising.

And how is this linked to domestic migration.  If you are a working couple with a fair amount of income, and that income and the accompanying quality of life is under pressure from interest rates, inflation and taxes, it makes all the sense in the world to move to a state where taxes and general costs of living are lower.  And that is what the data show is happening.  This study found that wealthier millenials were leaving high-tax states, with their primary destinations being Florida and Texas.  Georgia and Colorado also gained among this group, while as you might expect, California and New York were the big losers.  My home state of Minnesota–a net loser, as you would expect, with the sixth most net losses.  The average household income of those leaving was about $400,000.  This mirrors the broader pattern of income migration amongst all groups.   Tim Walz’ paradise, indeed.  (SA Study)