Economic data released last week was benign, cementing expectations that inflation is on a sustained downtrend. Nobel laureate Paul Krugman on Friday took exception to comments made by Republican presidential primary candidate Nikki Haley.
What Happened: Haley offered a bleak take on the economy in a campaign speech in her home state of South Carolina on Wednesday. Criticizing her GOP rival Donald Trump for throwing a temper tantrum, Haley said, “He [Trump] didn't talk about the American people once he talked about revenge. He didn't talk about the fact that we've got an economy in shambles and an inflation that's run out of control.”
Sharing excerpts of Haley’s comments from OK Magazine on X, Krugman said the economy grew 3% and core inflation was back at 2%.
See Also: Best Inflation Stocks
Why It’s Important: Advance estimate released last week showed that the U.S. economy grew at an annualized quarter-over-quarter pace of 3.3% in the fourth quarter compared to a robust clip of 4.9% in the third quarter. GDP rose 2.5% in 2023, quicker than the 1.9% pace in 2022.
Chart Courtesy of BEA
A separate report released Friday showed that the Fed’s preferred inflation gauge — the annual rate of the core price consumption expenditure index — fell from 3.2% in November to 2.9% in December. The Federal Reserve has a mandate to keep inflation at or under 2%.
Consumer price inflation has pulled back notably from the highs seen in the summer of 2022.
Chart Courtesy of BLS
Despite the positive picture relayed by hard numbers, the economic policies of the current administration, called Bidenomics, have not gone down well with the public. One of the reasons for Biden’s poor job approval rating is the negative perception about the economy’s health. The Federal Reserve had to raise the Fed funds rate to a 22-year high of 5.25%-5.50% to bring inflation down from the current cycle peak.
The higher-rate environment has pressured consumers and businesses, with the latter responding to it with job cuts. This, in turn, has impacted personal finances. Consumers, however, have remained resilient and have continued to spend, although their splurging has left them deep in debt.
Krugman Lauds Economic Performance: Following last week’s data, Krugman said in a separate post that the economy is alive and kicking. The economist said, “So 2023 was a miraculous year for the economy: high growth with inflation falling all the way back to the Fed’s target, rising real wages.”
Sharing a YouGov chart, Krugman said the Republicans thought otherwise.
“Using annual core CPI puts you way behind the curve, for 2 reasons. First, annual: even core CPI was 4.6 in the first half of 2023, 3.2 in the second half. Second, known lags in official shelter prices lagging far behind market rents,” he said.
“So annual CPI creates a spurious impression of stubborn inflation, with a difficult last mile to cover.”
He observed that shelter receives a lower weight in the calculation of price consumption expenditure.
“The inflation battle is over. Now we need to worry that lagged effects of rate hikes will tip us into an unnecessary recession,” the economist said.
The iShares TIPS Bond ETF TIP, an exchange-traded fund that tracks the investment results of an index composed of inflation-protected U.S. Treasury bonds, ended Friday’s session up 0.43% at $107.79, according to Benzinga Pro data.
The SPDR S&P 500 ETF Trust SPY, another ETF that tracks the S&P 500, eased 0.13% to $487.41.
Read Next: Falling Inflation: Who Are Likely To Be The Stock Market Winners?
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