President Joe Biden said on Monday that the American people should have confidence that “we’re on the right track” and that we are “seeing real progress” in the fight against inflation.

The Federal Reserve Bank of New York’s latest survey indicates that Americans actually are pretty confident that we have seen the worst of inflation. The median one- and three-year-ahead inflation expectations “continued their steep declines in August,” the New York Fed said. Expected inflation over the coming year fell to 5.7 percent from 6.2 percent in July. This was at 6.8 percent in June and 6.6 percent in May.

The median expectation for inflation over the next three years fell to 2.8 percent from 3.2 percent. This measure peaked all the way back in September and October at 4.2 percent. It is now back down to around its long-term average, an indication that the public really has become convinced that the Federal Reserve will bring inflation down to a historically normal level.

These expected figures should probably be taken with a good deal of skepticism. If inflation were to run at an average of 5.7 over the next 12 months, for the average to drop to 2.8 percent over the next 36 months, the year two and three inflation rate would have to be between 1.2 percent and 1.3 percent. That’s extremely unlikely.

The New York Fed survey also indicates that the median expectation is for household spending to increase 7.8 percent, an increase from 6.9 percent a month ago. That big of an increase in household spending is unlikely to be followed by a big decrease in inflation.

We’ll also note that mean unemployment expectations—the probability that the U.S. unemployment rate will be higher one year from now—decreased by two-tenths of a percentage point to 40.0 percent. Similarly, the mean perceived probability of losing one’s job in the next 12 months decreased by seven-tenths of a percentage point to 11.1 percent. Both of these are inconsistent with inflation falling dramatically. They indicate that the public is still a bit naive about how the Fed’s tightening of financial conditions is likely to inflict pain in the labor market.

CPI Day

The Department of Labor will release the August read of the Consumer Price Index (CPI) on Tuesday morning. Wall Street’s economists see the index declining by one-tenth of a point, the first decline since May of 2020. Much of that will be attributable to the decline in the price of oil and gasoline, which has been falling due to increased supply from the Strategic Petroleum Reserve and decreased demand due to China lockdowns and impending recessions around the globe. There will also likely be declines in a few of last year’s high-fliers like used cars. On an annual basis, CPI is forecast to be up 8.1 percent, the fastest pace of inflation since 1981 (excluding this year’s astronomical readings).

Core inflation, which excludes fuel and food prices, is forecast to rise 0.3 percent month-to-month and 6.1 percent year-over-year. The annual figure would be an acceleration from July’s 5.9 percent. While goods inflation may moderate, it’s almost certain that the figures for rent and owner’s equivalent of rent will show additional inflation. Services inflation may also increase as spending power freed up from falling gas prices slashes into spending on leisure activities. Food inflation is likely to remain extremely hot.

We’ll be paying particular attention to the Cleveland Fed’s median and trimmed-mean CPI metrics. These arguably give a better view of underlying inflation than either headline or core inflation because they cut out the noise from big and idiosyncratic price changes. Both showed rising inflation on a month-to-month basis in July, albeit at a slower pace than in June. On a year-to-year basis, both were up in July.

Woke Capitalism Is Alienating Republicans 

Each year, Gallup conducts a poll that asks Americans whether they have positive or negative views of 25 U.S. business and industry sectors. Last year, there was a big and little noticed crash in Republican positivity on U.S. businesses. The average score among Republicans fell from a net positive 42 to a net positive 32. In the latest poll, the score slipped one point to 31 percent.

This is very likely a reaction against Woke Capitalism. Republicans have noticed that many U.S. businesses are hostile not only to their values but also to Republicans and conservatives themselves. It’s not surprising that Republicans take a negative view of Hollywood, with 61 percent saying they have a somewhat or very negative view of TV and radio, and 53 percent having a negative view of the movie industry. More surprising is that 49 percent have a negative view of internet companies, 46 percent of the sports industry, and 44 percent of publishing.

This has implications for business and the Republican Party. For business, it should be a wake-up call. Republicans have been reliable opponents of tax increases on businesses and critics of burdensome regulation. But the alienation of Republicans largely because of cultural issues may weaken the party’s attachment to pro-business positions. Taking sides with the left in the culture war has a cost for corporations.

For the leadership of the Republican Party, the poll numbers are sending a clear message that the center of gravity of the party has shifted in a populist direction. Republicans will increasingly need to make it clear that they are the party of workers and not of corporate interests. In particular, GOP voters see themselves as very much opposed to Silicon Valley—just 5 percent have a very favorable view of the computer industry and 7 percent of internet companies.

Not entirely coincidentally, this was Florida Gov. Ron DeSantis’ theme at the National Conservatism conference in Miami on Sunday. “The lesson for people on the right is, I think there was a generation of people, that kind of the muscle memory was just if it’s private, just defer to it. If it’s a corporation, let them do kind of what they want to do,” he said. “Because, you know, look, we don’t want to micromanage different things in the economy. I’m not a central planner. I certainly don’t want to be doing that, but corporatism is not the same as free enterprise.”