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Core inflation is high, but starting to ease

Published on 20 Comments on Core inflation is high, but starting to ease

The New York Times says inflation rose "sharply" last month using the Fed's preferred measure, and I suppose that's true. But as usual, context is everything:

Core PCE inflation peaked in April and has been dropping ever since. So while it's still high by historical standards, it's plummeted to half of what it was just a few months ago. This suggests that the momentum behind high inflation is starting to ease.

And we're still dealing with the crazy situation in used cars, which is artificially pushing the inflation rate up. Presumably this will resolve itself in the near future, and all by itself that will probably knock a percentage point or so off the inflation rate.

20 thoughts on “Core inflation is high, but starting to ease”

  1. Brett

    The stupid semiconductor shortages seem to be taking forever to resolve, and spreading to new sectors as well (now they're saying there might be shortages of the new iPhone model because of it).

    1. veerkg_23

      There are always shortages of a new iphone model. That's why they stagger the releases. Last year the mini was released 2 weeks after the main models, and pro max version a whole month later.

      Demand for chips is up since everyone restarted manufacturing and assembly at the same time. Production is going at full tilt, but it will take a while for the excess demand to be met.

  2. skeptonomist

    Inflation isn't controlled by "momentum", it's controlled most of the time by supply of the things that go into the indexes. The supply chains have been disrupted recently by the pandemic, combined with certain habitual problems - for example computer chips are subject to manufacturing inertia. But one price problem that probably won't go away with the end of the pandemic is housing cost. There is just not enough housing, at least for lower incomes. But this is not a problem that would be solved by raising interest rates - higher rates would only reduce the rate of house and apartment building, if there is any effect at all. This contribution to inflation might be reduced by more government spending on building of housing. Don't hold your breath waiting for local zoning laws to change.

  3. Lounsbury

    If inflation settles to the high 3.x% to low 4-4.2% range this would not per se be a terrible thing as it would pull up benchmarks away from the dangerous zero bound. The danger being of course self-reinforcing upwards expectations.

      1. Lounsbury

        3-4% is perfectly manageable and unproblematic (as 80-90s economic data show of course across multiple countries). So long as it is stable. It can be easily enough priced in and adjusted Stability is the key.

        Historical record rather suggests that one gets into problematic cost territory (as in the cost of adustment, the proverbial shoe leather costs) above - as a rule of thumb here not a scientific number - 5 or so, maybe 6.

        A stable long-run 3 to 4 cushions against the zero-bound problem.

    1. TheMelancholyDonkey

      The combination of temporarily limited new car production and temporarily high demand from rental car companies rebuilding the fleets they sold off a year ago.

  7. D_Ohrk_E1

    NYT: https://bityl.co/8Qhi

    Congress put a total of $16.05 billion in the American Rescue Plan this year, in two separate tranches, that could be used to procure and manufacture treatments, vaccines and tools for ending the pandemic. But PrEP4All found that all told, the administration had spent $145 million — just $12 million of it from the American Rescue Plan — to expand vaccine manufacturing.

    Biden's COVID team needs an overhaul and they need to get their priorities figured out. The top goal should be the expansion of production capacity to rapidly produce billions of doses, especially in light of boosters. This is easy shit, especially when Congress is throwing the money at you to do it.

    1. lawnorder

      There may or may not be a benefit to "throwing money at it". The mRNA vaccines are new technology, so their production does not have robust established supply chains. The entire production process, from raw materials to storage facilities for shot providers is still under construction. My impression, especially with boosters in prospect to guarantee a large continuing demand, is that both Pfizer and Moderna are expanding as fast as possible, but things take time.

      The machinery involved, not just in making the vaccines themselves but also in making the precursor chemicals that need to be supplied to the vaccine "factories" is made to order and consequently takes at least months to obtain from the time an order is placed. The people operating the factories (both the vaccine factories and the precursor chemical factories) need to be trained, and the whole existing trained work force is employed in existing facilities. All of these things are being done.

      At this stage, throwing big gobs of government money at expansion of vaccine production expansion might well have the perverse effect of diverting critical resources away from the existing producer efforts to expand production, thereby actually slowing those efforts rather than speeding them up.

      1. D_Ohrk_E1

        The entire production process, from raw materials to storage facilities for shot providers is still under construction. My impression, especially with boosters in prospect to guarantee a large continuing demand, is that both Pfizer and Moderna are expanding as fast as possible, but things take time.

        In the project management triangle, you have cost - speed - quality. You can most certainly speed up anything if you're willing to throw big gobs of money at it, without compromising quality. That is the point of the PM triangle, after all.

        At this stage, throwing big gobs of government money at expansion of vaccine production expansion might well have the perverse effect of diverting critical resources away from the existing producer efforts to expand production, thereby actually slowing those efforts rather than speeding them up.

        I don't understand this. This money would be directed at Moderna/Pfizer/J&J (and the entire supply chain) to scale up production on the government's dime, so that the risk falls almost entirely on the government's. Explain what you mean, because I'm not so bright.

  8. rational thought

    Definitely agree here.

    I would note that a lot of this again is tunnel vision.

    Why did we not spend money- billions of dollars- to prepare for a possible pandemic in advance for the last few decades. And maybe spend to have whatever you need and can prepare to be able to ramp up a future vaccine fast?

    Well the chance of it happening is so small and, when it doesn't happen, everybody will blame us for wasting money . So instead we saved some billions then and now are spending extra trillions trying to cope ( even ignoring the deaths).

    Here in California, have to give Schwarzenegger credit. He actually did prepare for a pandemic and spent money and we had mobile field hospitals ready and supplies like n95 masks stocked. But subsequently that was abandoned and went to waste as later givernors decide that it was not worth the money simply to maintain.

    After covid, we damn better prepare and stockpile billions of n95 masks in case of the next virus. I have been very sceptical whether masks work all that well for covid ( although n95 do much better).

    But, with a different more serious virus that spreads more by droplets, they really could be life or death.

    That we did not even have enough of a supply for hospitals at first was a travesty . We should have a good supply for every citizen. And every single person should have a gas mask at home too.

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