Checking in on inflation
Big numbers
About three weeks ago, I wrote a post saying that we shouldn't fear inflation just yet. And, I still believe that!
But, of course, with the recent CPI release and lots of scary headlines, I’ve gotten a bunch of questions and heard a lot of concerns about inflation. That’s not surprising when you take a look at the year-over-year change:
That’s a big change, no doubt. The challenge though, is that it’s hard to know how much of inflation is being caused by:
Base effects comparing the current year to the previous year when everything was down due to COVID
A large (but temporary) amount of money printing by the Federal Reserve
Actual real scary inflation happening
I don’t think we can know if inflation is actually a problem until the first two items work themselves out. For base effects, that will probably mean a few more months. For money printing, yes, that is a real driver and causes real inflation but that’s a spigot in the Fed’s control.
Where we can get a slightly better look for the third item is month-over-month changes:
That recent rise is a concern but we still need to see the next few months. If that upward trend continues, we can start to raise more alarm. But, for now, I’m not going to lose sleep about inflation. Though, I think it deserves extremely close attention and monitoring - so this won’t be the last word I have on it, that’s for sure.
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