Forget the idea that inflation is confined to a handful of things experiencing supply chain bottlenecks or only moving volatile prices. Inflation is now widespread, penetrating deep into the economy, and extremely high.
The Consumer Price Index is up 7.5 percent compared with 12-months ago, the biggest jump in prices in 40 years, according to data released Thursday by the Bureau of Labor Statistics. And the evidence suggests that it will be much harder to overcome than previously thought.
When inflation began to roar last spring and summer, Fed officials and many analysts were quick to point out that big moves in just a handful of items were responsible for a big part of the increase. This was the core of the argument that inflation was due to “transitory” factors rather than a generalized rise in price level.
There was some evidence for this view, even if it ultimately proved wrong. If you stripped away the outliers related to reopening pressure or bottlenecks–such as used cars, rental cars, lodging, airfares, and food away from home–inflation looked milder. Back in August of 2021, for example, when CPI was up 5,2 percent from 12-months prior, the Federal Reserve Bank of Cleveland’s measure of median inflation was showing just a 2.4 percent increase.
Similarly, the Cleveland Fed’s so called “trimmed mean” inflation measure–which strips out the categories with the biggest price jumps or drops in each month–was up 3.2 percent. The Atlanta Fed’s “sticky price” CPI, which tracks prices that rarely change by much, showed just a 2.6 annual gain. Those were elevated but, in the view of inflation doves at the Fed and in the Biden administration, nothing to be alarmed about.
Now those measures are telling a very different story. Sticky CPI in January was up 4.2 percent, the highest level since October 1991. Trimmed mean CPI is up 5.4 percent and median CPI is up 4.2 percent.
What’s more, all of these measures suggest inflation is continuing to accelerate. If the monthly rate of sticky CPI hit in January were to last all year, those rarely-moving prices would jump 7.5 percent, the highest rate since 1981. Median inflation is running at an annualized rate of 7.1 percent, the highest rate on record in data going back to 1983. Trimmed mean CPI is at 7.9 percent, also an all-time high.
It’s likely that inflation will not run at these levels all year, especially if the Federal Reserve becomes more aggressive about raising rates and Capitol Hill reigns in deficit spending. But these figures demonstrate that the benign view of inflation many analysts, journalists, and government officials took last year was far from the mark.
Some in Washington, D.C. are still in denial. President Joe Biden, for example, is behind the times and still clinging to the notion that inflation is thin and transitory.
“Let’s look at the reasons for the inflation,” Biden said in an interview last night with Lester Holt, a broadcaster from the NBC Genocide Games network. “The reason for the inflation is the supply chains were cut off, meaning that the products — for example, automobiles, the lack of computer chips to be able to build those automobiles so they could function. They need those computer chips. They were not available. So, what happens? The number of cars were reduced — new cars reduced. It made up 1. — 1/3 the cost of inflation because the price of automobiles were up. ”
That’s a statement that was plausible back in the summer of 2021. Now it is evidence that the president has not kept up to date with the economic data.