Inflation: I Hope They Know What They're Doing

March, 2021: Brisket $3.69/lb

The headline story in Friday's WSJ comes as no surprise. On our weekly shopping trips we've been noticing substantial increases in the price of food, and it's a good thing that we don't drive much any more because Bay Area gas is almost $4 per gallon. As noted in an earlier post, we've been having flashbacks to the 1970's. [bold added]

The Labor Department said last month’s increase in the consumer-price index was the largest since August 2008, when the reading rose 5.4%. The core-price index, which excludes the often-volatile categories of food and energy, jumped 3.8% in May from the year before—the largest increase for that reading since June 1992.

May, 2021: Brisket $4.49/lb

Consumers are seeing higher prices for many of their purchases, particularly big-ticket items such as vehicles. Prices for used cars and trucks leapt 7.3% from the previous month, driving one-third of the rise in the overall index. The indexes for furniture, airline fares and apparel also rose sharply in May.

To be sure, a portion of these price hikes represents a springing back of demand from the lockdown economy of one year ago. A comparison with pre-COVID 2019 is less alarming:

June, 2021: Brisket $5.49/lb

The annual inflation measurements are being boosted by comparisons with figures from last year during pandemic-related lockdowns, when prices plummeted because of collapsing demand for many goods and services. This so-called base effect is expected to push up inflation readings significantly in May and June, dwindling into the fall.

Compared with two years ago, overall prices rose a more muted 2.5% in May.

Policy-makers are currently behaving as if the inflation spike is temporary.

Despite his fears, your humble blogger hasn't seen convincing evidence that they're mistaken. Like last year, when our worries were about a different subject, we're forced to trust that the experts know what they're doing. And it worked so well the last time....