Grumpy Economist: Inflation Level

Grumpy Economist: Inflation Level



The inflation rate rose in March. CEA delivery A historic thunderstorm.It starts at

Temporary factors: basic impact, supply chain disruption and suppressed demand, especially service demand

I am happy once Set a forecast: As in the 1970s, the first response of the Fed and the government to inflation will be to invoke “temporary” factors. We will see how it turns out.

CEA continues to carry out “basic effects”

In the short term, we and other analysts expect that annual inflation measures will have a “fundamental impact.” This effect occurs when the base of the growth rate or the initial month is abnormally low or high.

The unusually large drop in prices at the beginning of the pandemic made the April 2020 base figure low.

Since this is a thing of the past, we can speak more clearly. Yes, if you start with a low base, you can see a lot of growth. To avoid arbitrariness, let us look at the price level. This is the most recent CPI (blue) and the CPI (red) minus food and energy. These are the levels of CPI-conceptually speaking, today is the dollar ($271) that was spent to buy $100 in 1983.

The rise in recent months is clearly visible. You can find your “base month” by drawing a line. Yes, the line from April last year to today shows an abnormally high slope because of the abnormally low in April last year.

But in terms of the “inflation” we just saw (that is, prices returning to normal after a deflation-induced recession), the graph shows that it was last summer. By September, “inflation” had ended. Map your own trends-this is why I left some history.

Inflation data is also seasonally adjusted. This is a big black box involving a seven-year two-way weighted moving average. This is a major reason for the continuous revision of the data. For the annual growth rate, you should also check the real data:

This is the non-seasonally adjusted CPI (blue), and the CPI for food and energy (red) is deducted. If you tell the story, then the inflation of last fall is over, this is something new. But, as we were reminded in the two charts in 2019, things did happen.

By the way, this is the CPI during the last recession

It is difficult to see a downward trend in the red core CPI around 2010. In line with the economic recession driven by the financial crisis (rather than the supply-side pandemic shutdown) and counterproductive policy prolongation (in my opinion), we see this trend. The price level has always remained below the previous trend.


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