BLS released its March inflation numbers today, and they ticked down nicely from February:
Core inflation is still stubbornly high, which BLS attributes largely to increases in the shelter index. This is fairly artificial, and should decrease substantially once their measure of shelter inflation catches up to the current day.
(And in case you care, year-over-year inflation was 5.0% for the headline rate and 5.6% for the core rate.)
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If I had to guess, I’d agree with Kevin’s basic premise that inflation is enough under control that we don’t need more rate hikes. The main question is about shelter. The official numbers are delayed and many people feel the data shows that for the last 6+ months shelter prices have been under control. I checked calculatedriskblog.com and he posted: The BLS noted this morning: "The index for shelter was by far the largest contributor to the monthly all items increase."
So do we need more rate hikes? Krugman posted, 'So many definitions of underlying inflation that you can almost always find a number that confirms your priors. But this report still looks like "immaculate" disinflation — inflation falling without any rise in unemployment'. He then posts a graph of the 6-month Percent Change in All items less food, shelter, energy, and used cars and trucks. By that measure we are at 2% (which I think means 4% annual?) and it has continued to fall for most of the past year so maybe we’ll end up for the year under 4%.
Someone replied to Krugman that except for all the things people buy inflation is under control. Is that true? Food prices have been steady for over 6 months. But what if food prices were still rising? Would raising interest rates until we had 5% or 7% unemployment cause food prices to drop? Last I checked unemployed people still eat. What about energy? Prices have gone up and down over the past year. Saudi Arabia really wants to make the entire world look like Putin’s Russia. Should we raise interest rates every time they try to help Putin? Maybe. Maybe not. I think the car companies are still producing fewer cars than they want because of chip shortages. Does that mean millions of people should be thrown out of work because used cars cost more? Will higher interest rates really decrease used car prices?
There are many benefits of very low unemployment. Low unemployment helps bring more workers into the workforce and some of those people stay in. This increases long term productivity. I’ve read Black unemployment has reached record lows. Low wage workers benefit the most from low unemployment. Do the benefits of very low unemployment outweigh the downside of 4% inflation? I think they do. I suppose now would be a good time to mention that I think a big part of the current inflation is monopolies keeping prices high and I wish the government would concentrate on breaking those up. Do we have enough workers? I keep wondering if immigration is the same now as it was before Covid. Is there something Biden can do unilaterally to increase legal immigration?
Right now things look under control. Maybe inflation will spike, but inflation could spike at any time. I was unemployed for most of 2002. It was the worst part of my life. Comparing long term unemployment and 4% inflation, 4% inflation is nothing.
There is a reasonable case for a pause.
There is also a reasonable case for a small hike with a readiness to drop.
The lessons of the 1970s full period (68-82 period) however is declaring victory early on inflation where one is subject to exogenous food and energy shocks - as OPEC reminded all, the case now - is a risky proposition: as the full time series of said period shows, with several pause periods and then reaccelerations, in a pattern that has been disturbingly similar - of course not identical). It is easier to open up faucet of easing than to tamp down entrenched inflation. That is not to say as some rather dimwitted Left inflation denialists have knee-jerked that one is predicting a rerun of the 1970s, rather one has to take the cautionary lessons of the entire macro-period, not merely the end slice of 78-82 (ish) that popular memory tends to fixate on
Given the massive increase in US oil exports and corresponding massive decrease in oil imports, we should not expect the outcomes of energy shocks of the 2020's to resemble the energy shocks of the 1970s. In fact we can see that this is the case if we just look at recent history.
But you do get internet comment irony bonus points for your last sentence. kudos.
The clumsy and crude strawman aside, oil is priced globally and US net import and export is not meaningful. Gross global demand against gross global consumption.
No irony bonus except perhaps for yourself for such a comment made in evident ignorance of the time series data.
It is worth adding that in Central Banking policy circles that there was prior to this inflationary episode much discussion that the 2% target concept that New Zealand invented and piloted (yes New Zealand) is demonstrably too low as a target as the strange distortions of 2008-2020 period showed, and rather a 3-4% target would be a better target.
Once central banks establish credentials for fighting this episode there is much to merit a reset to a 3 or 4% target.
I'm selling my home and can tell you in the Mid Atlantic area home pricing have been dropping and rents have stabilized. Hoping rates continue to fall and we get a softer than projected landing
It's still too early to tell if the shelter component is actually coming down. We're in 6 months of normal seasonality coming back, but there's not April - May data yet really to show if units are the same price as last August-September before they started falling for seasonal reasons, or if they are going to be up 3+% again which would keep upward pressure on inflation.