Inflation Persists: February’s CPI Data

By at 14 March, 2023, 10:49 am


by Raymond J. Keating –

Once inflation rears its ugly head, it’s never easy to be rid of it. And we’re seeing that in the latest measure of inflation, that is, the Consumer Price Index (CPI) for February 2023 from the Bureau of Labor Statistics.

CPI inflation registered 0.4 percent in February. That’s a slight improvement from January’s 0.5 percent, but it was up from monthly measures in the previous two months. (See the following chart.)

Source: Federal Reserve Bank of St. Louis, FRED

But we need to put things in an even broader perspective.

As is clear in the above chart, the U.S. economy faced high inflation from at least early 2021 to June 2022. Over that period, annualized inflation ran at about 8.4 percent. Meanwhile, from July 2022 to February 2023, annualized inflation came in at approximately 3.6 percent. That’s a notable improvement, but we still don’t have inflation under control. And from month to month, matters can vary notably, and the threat of inflation being reignited always lingers.

Having said all of that, policymakers need to be vigilant, but also clear in thinking. And at the risk of repeating ourselves over and over, that means the Fed needs to get out of the business of trying to manipulate vast swaths of the economy – that is, working to slow the economy – via cranking up interest rates.

That only creates additional risks and unknowns, and does little, if anything, to actually deal with inflation. Leave interest rates to the market. Meanwhile, continuing with recent efforts to rein in the massive expansion in the monetary base (i.e., currency plus bank reserves) begun almost 15 years ago would be positive. However, there seems to be no reason why the pace cannot be quickened.

For good measure, again as SBE Council has pointed out before, Congress and the Fed do have parts to play. And since inflation ultimately is about too much money chasing too few goods, policies that incentivize entrepreneurship and private investment, which are the engines of economic growth, must be enhanced.

Therefore, do tax increases and increased regulatory burdens, as relentlessly pushed by President Biden, make any sense? Of course not. The exact opposite is needed. Substantive and permanent tax and regulatory relief, along with free trade, will boost growth, and thereby, work against inflation.

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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