Some Encouraging News on Inflation

By at 13 December, 2022, 12:24 pm

by Raymond J. Keating –

We all should cherish bits of positive economic news wherever they can be found. And the news on inflation, as measured by the Consumer Price Index, for November was welcome.

The U.S. Bureau of Labor Statistics reported that CPI inflation registered 0.1 percent for November. That was a marked slowdown not just from the two previous months – which both registered 0.4 percent – but from the red hot inflation that raged prior to July. (See the following chart from the BLS release.)

Over the past year, inflation registered 7.1 percent. But if we look at the last five months, we’ve seen a notable slowdown in inflation. In fact, if we annualize the data from the last five months, we get an annual inflation rate of 2.4 percent. If we were to settle into that range for a while, and then perhaps falling back to the 2 percent or less range, that would be a mighty and positive transformation.

But as we’ve said before, periods of high inflation include a good deal of volatility, whereby a month or two of positives give way to inflations spikes.

Obviously, getting public policy pointed in a productive direction would help. For example, that would require the White House and Congress to adopt pro-growth policies, such as substantive tax and regulatory relief, advancing free trade, and reining in government spending. Alas, though, none of that is happening.

On the monetary policy front, the Fed should back off manipulating interest rates in the mistaken belief that inflation should be brought under control by actually undermining economic growth, and instead, just focus on sopping up the mess of unprecedented expansion in the monetary base (i.e., currency in circulation plus bank reserves) that it has perpetrated for nearly a decade-and-a-half.

Given that policymaking has been so poor, the slowdown in inflation in recent months has been, again, welcome. Uncertainties, though, remain as to where inflation and the overall economy are headed, with recession – indeed, stagflation – still very much in the mix.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.


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