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New CPI data released today from the BLS indicates that U.S. inflation is not yet tamed. The graph below shows the one-year growth rate of the CPI on a monthly basis since the beginning of 2022.  

After consistent declines since June 2022, inflation has now increased slightly for two months in a row, and is now back up to 3.7 percent. This should worry anybody who hoped that inflation would continue falling down into the 2% range.

As for particular categories, gasoline prices rose drastically in August, up 10.6% in just one month. Rental housing expenses are also up 7.3% since a year ago. This is particularly difficult for consumers, since about 35% of monthly spending is on housing for an average consumer.

One word of caution: gas prices and housing costs do not cause inflation, they merely reflect inflation. Many other prices in the economy have fallen over the past year (for example, television prices are down 10.1% and washing machines are down 12.8%). Over time, when the overall price level rises (as opposed to changes in the relative prices of goods) it is due to changes in the overall quantity of money in an economy. The quantity of money is hard to measure, but the Federal Reserve does control a large chunk of it, and so monetary policy can definitely affect inflation rates.  This means that Jerome Powell's job is not yet done.

Today's CPI report indicates that lower inflation is probably here for a while. Year-over-year growth in the CPI was just 3.2% in July (see the graph below). This follows on the heals of 3.1% inflation last month.  You can see from the graph that inflation is now back down into its normal range.

The lower inflation reflects the Federal Reserve's commitment to bring inflation down to the 2% target range.  Just one year ago, inflation was 8.4 percent.

Keeping in mind that inflation is the growth rate of the general (overall) price level, it is still interesting to look at changes in some individual prices.  The table below shows a selected few "big movers," or prices that moved a lot in the past year. The last column also gives the weight assigned to these categories in the overall CPI.  Recall that this weight is equivalent to the portion of a typical consumer's monthly budget spent on these categories.

As you can see, gasoline prices fell by almost 20% over the past year and the typical consumer spends about 3.4% of their monthly budget on gasoline. Frozen vegetable prices rose dramatically over the past year, climbing 17.1 percent. 

New CPI data released this week shows that, despite the claims and wishes of our government leaders, inflation is not going away anytime soon.  Inflation for the year ending in January is estimated at 7.5%, according to the BLS. As the graph below shows, this is the highest U.S. inflation rate in forty years.  

This is not good news.  Perhaps the most discouraging aspect is the reaction of many of our political leaders, who are blaming this inflation on supply chain issues and market power combined with corporate greed. On the one hand, yes, both of these are currently present and both can lead to higher prices. But while those issues might help explain a one time jump in the price level, there is no theory as to how they cause continued price level growth.  Overall supply chain issues are certainly not continually worsening over the past 18 months.  Similarly, corporate greed is not a new phenomenon that suddenly appeared two years ago and is now growing month by month.

Here is an idea – maybe just maybe inflation is caused by changes in the money supply. The graph below shows the U.S. M2 money supply since 2010.  Clearly there is a fairly constant growth rate right up until 2020, when the slope of the line steepens drastically.  That is, M2 didn't just jump at the beginning of the COVID era, the rate of growth increased (the slope of the line) and never returned to the previous level.  In fact, M2 has increased by 40% since the beginning of 2020.  

Granted, M2 is an imperfect measure of our modern money supply. That said, changes in M2 of this magnitude are not irrelevant and changes in M2 can be used as a proxy for changes in the overall level of money in an economy.

Finally, some economists might argue that the new money growth is completely appropriate or necessary in this era of instability and uncertainty.  Fine, but let's recognize and communicate this clear cause of the highest inflation rate we've had since 1982.

The new CPI data released today by the BLS shows what many of us are feeling when we buy gasoline and groceries: inflation is here and it is not going away immediately.  The year-over-year measure was up to 7% in December 2012 and this is the highest level since June 1982.  The graphic below shows annual inflation since 2000.

The table below, from the BLS report, shows increases in the major category areas.  Year-over-year increases are shown in the last column.

Over the course of the year, you can see that gasoline prices rose 49.6% and Used cars and truck prices rose by 37.3 percent.  But even grocery prices (food at home) rose by 6.5 percent.  

This inflation won't go away anytime soon.  Even if prices don't rise at all for six months, the inflation rate will be over 4% in June because of the way this statistic is computed (using all data from the previous 12 months).  Unfortunately, prices are probably going to continue to rise throughout this spring.