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Chart of the day: Inflation in June was 5.3%, 4.4%, or about 3%. Take your pick.

Exciting news today! The June inflation numbers are out. I won't keep you in suspense:

That's pretty high! However, if you use Kevin's Handy Inflation Calculator, which adjusts for base effects (that's the dip in mid-2020) the real-world rate is more like 4.4%. And if you eliminate the distortion of used cars, the inflation rate for everything else is probably less than 3%.¹

I know, I know, that's a lot of adjustments. Take 'em for what they're worth. The only adjustment that really matters is to go forward in time and see if inflation settles down once the economy adjusts to its grand reopening. But that's one adjustment we're just going to have to wait for.

¹According to the BLS, the inflation rate of used cars "accounted for more than one-third of the seasonally adjusted all items increase."

25 thoughts on “Chart of the day: Inflation in June was 5.3%, 4.4%, or about 3%. Take your pick.

  1. catnhat7

    If one accepts both of Kevin’s ‘adjustments’ to the recent inflation data there is still a challenge: politically, inflation is running ahead of generally accepted projections and the monthly job creation numbers are below the same ‘experts’ estimates.

    1. Jasper_in_Boston

      My understanding is inflation in 2021 thus far is well below income gains. (That's part of the reason inflation is as high as it's been -- spending power. But still). And the labor market looks incredibly robust. Not sure exactly what you're referring in terms of "experts" but I've read multiple accounts saying job growth this year has exceeded the pace of 1984.

      1. catnhat7

        Politically, there was a theory that the, Democratic only, $1.9 T rescue plan would deliver a robust economy: the booming economy would result in mid-term gains for the Democrats. To date, while not horrible, the economic results have been mildly disappointing. Inflation is running above expectation and job creation is below expectation. Note, if job creation was above expectation the political argument would be simple: sure, we have a bit of inflation but look at all of those new jobs…

          1. jakejjj

            It's always amusing to see comments from "progressives" who don't know anything. You give me reason to smile. LOL

    2. colbatguano

      Maybe we should wait for more than 2 months worth of data? Nah, it's much better to freak out of this and choke the recovery in its crib.

    1. MontyTheClipArtMongoose

      Is the failure to vaccinate 70% of the adult population by Independence Day 2021 Biden's housing crisis?

  2. raoul

    I think we need another adjustment. Because of COVID people have been hoarding capital without the ability to spend it. As things reopen, there will be a positive rush to spend this money and since there is extra capital people will try to outbid each other leading to a higher increase in prices than an expected curve normalization. The incentive to spend creates higher prices.

    1. Justin

      The solution to that problem is to stop spending on junk. Once everyone has had a good vacation, normal spending will return. A local restaurant has temporarily closed because they don’t have staff. They are consolidating to run the other restaurants they own. People found better jobs and so restaurants are on the outs cutting hours and closing. This is a good thing - Crummy low pay employers exploiting workers going out of business.

      Maybe they will charge more.

      1. jakejjj

        That's exactly what's happening. Those of us who've been returning to restaurants are undergoing quite the sticker shock.

        Fun to see a "progressive" cheering for unemployment. Nice to be a rich, racist "progressive." Please have your friends tell my Latino brethren that you want them to be unemployed.

  3. golack

    W.I.N.
    Back when you could get change back from your dollar at McDonald's!
    😉
    It's going to take a while before things straighten out. Longer if people don't get vaccinated. And if Biden's approach to monopolies works out, better economics for agriculture will help. The gains in "efficiency" have meant a loss of resiliency.

  4. skeptonomist

    Kevin is right that the media's obsession with inflation is not really justified, but then his attempts to cherry-pick numbers to "prove" that inflation is not actually high are also silly. The actual "true" current inflation is the month/month number:

    https://fred.stlouisfed.org/graph/?g=Fn1V

    which for June was 10.9% at an annual rate. The fact is that inflation has really been high since the beginning of 2021. The question is whether this rate will continue and that has to be done by careful analysis of what is causing the rates. As experts such as Krugman (see his twitter feed) and Dean Baker point out, this rise is due mainly to supply bottlenecks, which should soon be solved, but whether there will be labor shortages that could cause inflation in the future is not really known, nor whether there will be further major government expenditures (don't bet on it - Democrats don't have the votes).

    1. jakejjj

      Thanks for the link. All 12 regional Feds have economists on staff. The St. Louis Fed is the bastion of monetarism, and even the Keynesians respect that work.

      That said, there's usually too much noise in month-to-month numbers to rely on them. At minimum, an objective analyst will wait for the revisions, which can be substantial. The common practice is to use year/year data, which tend to act as a shock absorber for the head fakes thrown by month-to-month comparisons.

      Year over year, that link shows prices +5.3%. I don't know how you came up with 10.9%. If it's an extrapolation from June '21/May '21, your number is highly prone to error.

      Two things popped out from the table.

      1. High tech has not been a deflationary force. If this is real, meaning not just a blip, it would be hard to overstate the implications -- not only for inflation, but for the larger economy and for high tech.

      2. Fuel is WAY up. In the 1970s, the Fed accommodated it with loose money, which yielded inflation. The alterative is to not accommodate it (Japan in the '70s being a good example.) This will put downward pressure on employment; Japan escaped that in the '70s because its auto and electronics exports were rockin' and rollin'.

  5. D_Ohrk_E1

    The Dallas Fed Reserve Bank calculates roughly what you're trying to get at, (which is an exclusion index known as) the trimmed mean PCE: https://bityl.co/7ohv

    As you can see, it in fact captures inflation that isn't temporary, a la late 70s - early 80s. The newest BLS data for June isn't incorporated yet, but one would not expect trimmed mean PCE to be very high at all.

  6. jakejjj

    Um, Kev, I might be a Latinx in need of saving by the "progressives," but I will forget more than you will ever know about federal economic stats, including but far from limited to measurements of prices, quality adjustments, productivity, and employment.

    In your ignorance you have missed something fundamental. It's something commonly missed by uneducated, lazy partisans.

    Yes, there are myriad issues with all of the measurements. The people (much smarter than you) will freely acknowledge them. The fundamental is this: The numbers are estimates, and always have been. Their main value on an ongoing basis is in the trends and not the absolutes.

    Until you can show (rather than simply proclaim) that the errors have changed, your nitpicking of each component is immaterial. If you were minimally diligent, logical, and objective, you wouldn't make the argument you did -- an argument that many a lazy, partisan idiot before you has made.

    A small example dates back to the inflation of the late 1960s through the early '80s. It started when the price of tomatoes went up. That was dismissed as unrepresentative. Other commodities followed suit. Then the first oil embargo hit, and the Fed made the fateful decision to accommodate it with easy money. Inflation, already heating up, exploded.

    Inflation is ALWAYS a monetary phenomenon. By the time it hits Main Street, it's too late. The longer the monetary authorities wait, the worse the cure, as illustrated after Volcker was appointed and broke inflation's back with tight money. Your attempt to "disprove" inflation is ignorant, and those who actually know anything are laughing at you. If they bothered to read your stupidity, it'll be one and done, poor fella.

    Cordially,

    The Latinx

    1. D_Ohrk_E1

      This falls under the "Inflation is whatever I say it is" argument, which of course generally ignores supply and demand out of convenience and simplicity of a narrow economic construct.

      1. jakejjj

        You don't know anything, but you're a "progressive" and that's your tribe's specialty. Thanks for the laughs, though!

    2. Spadesofgrey

      No it's not. That was John Rockefeller 's lackey Friedman's con. Yeah, 2.3% of June's inflation of used cars was a monetary phenomena. Give me a break loser

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