Inflation Hits 3.7% as Lamp Oil Jumps 9%, Loaf Index Wobbles

The Royal Bureau of Labor Tallies released its September inflation report Wednesday, and prices rose 3.7% over the past twelve months, up from 3.4% in August. Prices rose 0.6% in September alone. (I have checked this four times. I checked it a fifth time against a sack of flour, which was not helpful, but it was comforting.)

The villain is lamp oil. It jumped 9.1% in the month and accounted for about half the entire increase, because the Hormoth Narrows remain shut while Calimshan and the realm keep up their seven-month war. Oil is the one price that sneaks into every other price. It lights the tavern, powers the wagon that carries the grain, and heats the oven that makes the loaf. Energy overall rose 5.2%.

Here is the part that made me sit down. Strip out food and energy and the core rate was 2.6% a year, a little hotter than the 2.5% the clerks of the counting houses had guessed. That matters because the Federal Reserve of Waterdeep watches the core figure. As I explained when borrowing costs hit a 24-year high, Reserve Governor Kristoff Wallop has already said more hikes are needed. Traders now give a December hike something like 88% odds. The Reserve meets October 27 and 28, where it is expected to hold.

On the Loaf Index, one honest loaf is still 6 copper. I want to be clear about that. But a 3.7% rise means that a year ago the same loaf cost about 5.8 copper, and a hireling's wages have to outrun that gap before they get to feel any better. The hirelings of the realm added just 29,000 jobs last month, so I am not optimistic about the race. And the hearth-loan rates are already at 7.40%, so nobody can borrow their way out of it either.

Governor Wallop says the climbing yields reflect a stronger economy, not fear of rising prices, and that inflation expectations are "well anchored." Perhaps so. An anchor is a fine thing for a ship. My aunt Marigold, who keeps her savings in a boot, notes that a boot has no anchor and also no interest, and she has asked me to stop calling her at night.

Here is the economics underneath, plainly. When the price of one thing rises sharply, it pulls the average up even if nothing else changed. Whether it spreads depends on whether merchants and workers start expecting more and raising their own prices. That is what the Reserve is trying to prevent, and the only tool it has is making borrowing expensive. It works slowly and it hurts the tavern-keepers first.

What this means for your pantry: buy the flour now, buy the lamp oil later if you can wait, and do not ask anyone who says the market will sort itself out.

— B.T. (Loaf Index: see sidebar)