declaring victory against inflation way too soon
There are several different inflation statistics that are calculated using different baskets of goods and services. The most broad and comprehensive measure that I'm aware of is the GDP implicit price deflator, which attempts to measure inflation spread across all the goods and services produced in the US weighted by the amount of each item produced.
The most recent quarterly measure of this statistic is up 3.3% year-over-year, which would have been the highest since 2006 if not for the recent post-pandemic inflation spike since 2021.
There are other, more limited baskets of inflation, including the consumer price index (3.2%, everything consumers buy direcly), the personal consumption index (3.0%, everything consumers consume, including fringe benefits like employer health insurance), the producer price index (-3.6%, goods only -- goods are less than 30% of GDP), the import price index (-2.0%, imported goods only), and versions of each of these that leave out food & energy because their prices are more volatile than the rest.
I like referring to the broadest basket, the quarterly GDP version. Anyway.
Inflation of 3% or more is still too high. Even if inflation hadn't spiked much higher than 3% over the past two years, the Federal Reserve would still be fighting inflation of 3% or higher. They induced the recession of 2008-9 because inflation had been over 3% in 2005-6. They induced the recession of 2001 because inflation had been over 2% in 2000. The Fed doesn't like inflation over 2%.
Right now I see a lot of people quoted in the financial press as rejoicing because the fight against inflation is supposedly over, and assuming we won't have a recession now because inflation fell so far without one. But inflation is still too high! The members of the Fed keep telling us that they're going to keep interest rates high, and might still push them higher, unless inflation comes back down to 2% or less. Meanwhile, rates have been inverted for long enough that a recession is probably baked in now, starting within the next six months.
But it ain't a recession until it is a recession, so people can rejoice all they want, but inflation at 3% or more is still too high. And historically the Fed has induced a recession when inflation is as high as it is right now.
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There's also a political aspect to this, and a class aspect to this. Democrats keep touting how inflation has fallen so 3% inflation is no longer a problem, ahem. And wealthier people aren't as bothered by 3% inflation because that feels like a rounding error to them.
But for working class folks, prices skyrocketed after the pandemic ended and prices are still going up faster than usual. This pinches their budgets and erodes their savings.
Yet I see Democrats openly, and rather furiously, wondering why voters are still so down on Biden. They claim Biden brought down inflation, they claim that Biden passed all these wonderful spending bills for things like electric cars and computer chips and transportation infrastructure. But prices are still significantly higher than in 2020 and still going up faster than normal.
Historically inflation is a President-killer. The last time inflation spiked as high as it did during Biden's term, it knocked out Nixon, then Ford, then Carter. Inflation over 4% knocked out Johnson and Papa Bush, and over 8% knocked out Truman.
It would defy history for Biden to be re-elected after the spike of inflation we experienced during his term. But behold the blinding power of partisanship -- Democrats tell themselves that inflation is coming back down, and meanwhile Trump will destroy democracy. Well, people remember that under Trump inflation averaged under 2%. They'd like that back, please. Biden's "Inflation Reduction Act" was too little too late (and arguably didn't include any policies to actually reduce inflation, except for the cost of one product -- insulin).
I would pin the blame for our inflation on both Trump and Biden, because the massive growth in the money supply occurred under both Presidents, between March 2020 and April 2022, as the Federal Reserve printed over $6 trillion in new cash to pay for a similar amount of increased federal spending from 2020-2022. But inflation didn't spike until the pandemic "ended" under Biden and then people began spending all that extra cash on consumer goods.
Now the Fed has to clean up the mess with higher interest rates and shrinking the money supply, while voters reasonably conclude that they need a different leader at the top.
Can Biden defy history LOL. Does he strike you as that kind of unusually charismatic dude?
The most recent quarterly measure of this statistic is up 3.3% year-over-year, which would have been the highest since 2006 if not for the recent post-pandemic inflation spike since 2021.
There are other, more limited baskets of inflation, including the consumer price index (3.2%, everything consumers buy direcly), the personal consumption index (3.0%, everything consumers consume, including fringe benefits like employer health insurance), the producer price index (-3.6%, goods only -- goods are less than 30% of GDP), the import price index (-2.0%, imported goods only), and versions of each of these that leave out food & energy because their prices are more volatile than the rest.
I like referring to the broadest basket, the quarterly GDP version. Anyway.
Inflation of 3% or more is still too high. Even if inflation hadn't spiked much higher than 3% over the past two years, the Federal Reserve would still be fighting inflation of 3% or higher. They induced the recession of 2008-9 because inflation had been over 3% in 2005-6. They induced the recession of 2001 because inflation had been over 2% in 2000. The Fed doesn't like inflation over 2%.
Right now I see a lot of people quoted in the financial press as rejoicing because the fight against inflation is supposedly over, and assuming we won't have a recession now because inflation fell so far without one. But inflation is still too high! The members of the Fed keep telling us that they're going to keep interest rates high, and might still push them higher, unless inflation comes back down to 2% or less. Meanwhile, rates have been inverted for long enough that a recession is probably baked in now, starting within the next six months.
But it ain't a recession until it is a recession, so people can rejoice all they want, but inflation at 3% or more is still too high. And historically the Fed has induced a recession when inflation is as high as it is right now.
-----
There's also a political aspect to this, and a class aspect to this. Democrats keep touting how inflation has fallen so 3% inflation is no longer a problem, ahem. And wealthier people aren't as bothered by 3% inflation because that feels like a rounding error to them.
But for working class folks, prices skyrocketed after the pandemic ended and prices are still going up faster than usual. This pinches their budgets and erodes their savings.
Yet I see Democrats openly, and rather furiously, wondering why voters are still so down on Biden. They claim Biden brought down inflation, they claim that Biden passed all these wonderful spending bills for things like electric cars and computer chips and transportation infrastructure. But prices are still significantly higher than in 2020 and still going up faster than normal.
Historically inflation is a President-killer. The last time inflation spiked as high as it did during Biden's term, it knocked out Nixon, then Ford, then Carter. Inflation over 4% knocked out Johnson and Papa Bush, and over 8% knocked out Truman.
It would defy history for Biden to be re-elected after the spike of inflation we experienced during his term. But behold the blinding power of partisanship -- Democrats tell themselves that inflation is coming back down, and meanwhile Trump will destroy democracy. Well, people remember that under Trump inflation averaged under 2%. They'd like that back, please. Biden's "Inflation Reduction Act" was too little too late (and arguably didn't include any policies to actually reduce inflation, except for the cost of one product -- insulin).
I would pin the blame for our inflation on both Trump and Biden, because the massive growth in the money supply occurred under both Presidents, between March 2020 and April 2022, as the Federal Reserve printed over $6 trillion in new cash to pay for a similar amount of increased federal spending from 2020-2022. But inflation didn't spike until the pandemic "ended" under Biden and then people began spending all that extra cash on consumer goods.
Now the Fed has to clean up the mess with higher interest rates and shrinking the money supply, while voters reasonably conclude that they need a different leader at the top.
Can Biden defy history LOL. Does he strike you as that kind of unusually charismatic dude?