Finally. What I’ve been saying for several months, this time from Alan Binder, Princeton Economist and former Vice-Chair of the Federal Reserve:
Excerpts? You want excerpts?
Over the past five months (June to No-vember 2022), inflation has slowed to a crawl. Whether measured by the consumer-price index, or CPI, which most people watch, or the price index for personal consumption expenditures, or PCE, which the Federal Reserve prefers, the annualized inflation rate has been around 2.5% over these five months.
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Yes, you read that right. Yet hardly anyone has noticed this stunning development because of the near-universal concen-tration on price changes measured over 12-month periods, which are still 7.1% for CPI inflation and 5.5% for PCE Inflation
I looked all over and couldn’t find a single reference to “helicopter money”. Crazy, huh?
What did change dramatically was the supply bottlenecks. Major contributors to inflation in 2021 and the first half of 2022, they are now mostly behind us.
Just wait a few more months and inflation will be entirely masked. Hey, prices are up only 0.1% this month! Inflation is tamed. But prices are still up 10+% compared to 24 months ago.
Even if inflation is on the way down, it will be a long time before current prices will be seen as the new normal. And I doubt many prices will ever fall back down.
DW and I went to dinner to a place that we had not been in a few months. Dinner and 1 cocktail each cost us $100 with tip. That dinner used to cost us about $70 or so with tip about 6 months ago. DW said we need to go out to dinner less, I suggested that she get used to the new normal in terms of cost.
Thank goodness our long term financial plan has inflation built in so that we can still go out and enjoy a nice drink and dinner without doing the dishes every now and then
Wow, this is really nice to see! I knew it was well off its peak(s), but I didn’t realize it’s dropped all the way back down to 2019 levels.
I guess these are wholesale prices shown in the graph, and retail will be trailing behind. Still, this drop along with a more modest decline in housing starts and I assume a larger decline in renovations/additions as Covid lets up, maybe construction costs will come back down a fair bit.
That is a very large generalization. We have left supply side econ which is all monetary policy.
In relative terms everything from here falls. But not for the retiring boomer who wanted a tax cut and now does not have a pot to bleep in. At a certain age you have capital or you do not. The majority of retirees do not have money. The workers are loving the money and want more. Labor is not the problem it is the solution as competition breeds efficiencies of scale. Relatively most people will be a lot better off.
Yeah, except the Fed is still on its anti-inflation crusade, and as has been pointed out multiple times, none of their interest rate action has had any effect on inflation yet. The lag is about a year. All of the rise and fall has happened on its own – pandemic, supply chains, government cheese.
Once the Fed actions kick in (in the coming months) we’re pretty much guaranteed a hard recession, especially if they continue what they’re doing. At least that’s what the models of people who enjoy data say.
