PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Inflation Ticks Higher in December

By at 11 January, 2024, 12:59 pm

by Raymond J. Keating –

According to the Consumer Price Index (CPI) report, inflation ticked up to 0.3 percent in December. That compared to 0.1 percent in November and 0 percent in October.

The following chart shows the downward shift in inflation that began in July 2022. And that, of course, has been most welcome.

 

However, while dramatic improvements on the inflation front have occurred, the U.S. inflation rate is still not where we want it to be, and while wrestling with getting inflation back under control, volatility also is inevitable, as we’ve seen over the last six months of data, for example.

The takeaway on the December inflation read might simply amount to “it could have been worse or it could have been better.”

As for the policy implications, nothing changes.

We need to be reminded that the Fed trying to fine tune the economy by jacking up interest rates is not what disinflation has been about. Rather, production (think supply chains) recoveries coming out of the pandemic and post-pandemic challenges largely worked to counter an inflation that initially was generated due to a combination of government pandemic checks or subsidies fueling demand, production declines and challenges (again, supply chains), and the Fed providing a foundation of loose money that began back in 2008.

Indeed, the Fed’s key action that needs to proceed was a reining in of the monetary base (currency in circulation and bank reserves) happening from the start of 2022 to February 2023. But the Fed has eased off such moves since March 2023.

What works for economic growth works for keeping inflation under control from a policy perspective, that is, supply-side tax and regulatory relief, free trade, restrained government spending, and sound monetary policy.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.

 

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