PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

“Glimmer of Hope” on Inflation?

By at 11 May, 2022, 6:26 pm

by Raymond J. Keating –

The latest Consumer Price Index report from the Bureau of Labor Statistics showed inflation slowing in April compared to the previous seven months.

According to the CPI, inflation came in at 0.3 percent in April. That was down from 1.2 percent in March. However, over the past 12 months, inflation ran at a still-frightening 8.3 percent rate.

Indeed, before anyone gets cocky and decides to proclaim that inflation is licked, periods of high inflation also are marked by inflation volatility from month to month. That’s clear in the following chart, which shows the monthly CPI inflation rate since the start of 2020.

Source: Federal Reserve Bank of St. Louis, FRED

Let’s also understand that a monthly inflation rate of 0.3 percent still translates roughly into an annual rate of 3.6 percent. While that’s far better than 8.3 percent, for example, it remains far too high.

Root Causes of Inflation

There’s a great deal of misguided observations being tossed about regarding the causes of inflation.

In fact, while there’s much uncertainty swirling about the degree of contributions to inflation, what’s in the mix as causes isn’t really that much of a mystery, that is, pandemic effects on supply chains, a tight labor market with significant chunks of workers still remaining outside the labor force, the Fed’s historically loose monetary policy (which effectively has been the case since 2008), and assorted policies – imposed and proposed – from the Biden administration and Congress working against economic growth, in particular high spending, heavier tax and regulatory burdens on entrepreneurs, businesses and investors, and continuing protectionist trade policies.

At this point, it seems like the Fed has suddenly clued in to inflation realities, while President Biden and Congress seem content to operate in the world of politics rather than sound economics and policymaking.

The slowdown in CPI inflation in April offers “a glimmer” of hope, but much work lies ahead.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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