@wendybg
I checked CPI and PCE inflation index values since June 2022, when year-over-year inflation peaked (chart below).
The recent data indicate something different than inflation being high for a prolonged period, like you have been saying along with you referencing stagflation.
Over the last five months, Jun to Nov inflation numbers, CPI changed 2.47% annualized and PCE Price Index changed 2.42% annualized, quite a reduction in inflation and not too far from 2%. And the economic outlook, including the job market, is for slowing down, which is not very inflationary (supply shocks are a different matter). Some other recent posts make similar points (I agree with me, Job growth strong, wages growing - #3 by Arindam).
CPI 2022
| Jun | Nov | % Change | % Change Annualized |
|---|---|---|---|
| 295.328 | 298.349 | 1.02% | 2.47% |
PCE Price Index 2022
| Jun | Nov | % Change | % Change Annualized |
|---|---|---|---|
| 123.512 | 124.747 | 1.00% | 2.42% |
CPI (Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPIAUCSL) | FRED | St. Louis Fed)
PCE Price Index (Personal Consumption Expenditures: Chain-type Price Index (PCEPI) | FRED | St. Louis Fed)
It’s funny, pre-pandemic the Fed was so worried about deflation and even said that they were comfortable with inflation running a bit above their 2% target, which is probably about where we are now (in the U.S.). Is the Fed on the verge of another over-correction? I think maybe yes.
Recent Fed Over-Corrections
- Pre-Pandemic: Held rates too low for way too long because of deflation worries, causing asset bubbles.
- Pandemic: Slow to raise rates from 0% as economies re-inflate while emerging from the various pandemic shocks.
- Post-Pandemic: Raising rates too high for too long in the face of slowing inflation (recovering supply chains, economies), a slowing job market and economic headwinds ??? (to be determined)
Overall, I respect the Fed, especially the chairs because I feel they are trying sincerely and with much effort to meet their mandate. But I do think they have over-steered a few times, unfortunately.
