Media Trying to Put A Happy Face on 8.3% Inflation – IOTW Report

Media Trying to Put A Happy Face on 8.3% Inflation

ABC News

Inflation slowed in April after seven months of relentless gains, a tentative sign that price increases may be peaking while still imposing a financial strain on American households.

Consumer prices jumped 8.3% last month from 12 months earlier, the Labor Department said Wednesday. That was below the 8.5% year-over-year surge in March, which was the highest since 1981. On a month-to-month basis, prices rose 0.3% from March to April, the smallest increase in eight months. More

More happy talk Here

Closer to the truth

There are three reasons why the odds on a recession are high at present.

First, inflation is becoming entrenched judging from the above analysis. Inflation is high and broad based whilst the labour market is tight. The rise in sticky prices is a particular concern as by their nature they move more slowly and take longer to come down.

This would allow more time for second round effects to develop where wages follow prices higher leading to a further round of price hikes.

As a result the task for central banks of bringing price rises back to target is made harder: monetary policy needs to tighten by more to bring demand into line with supply. In this environment a recession may actually be necessary to bring inflation down.

Second, monetary policy is a blunt tool. Milton Friedman’s theories have informed the monetary policies credited with taming inflation for most of the past four decades.

He said, however, that monetary policy acts with long and variable lags. Confidence effects also play a role. Fears of recession can become self full filling for example, resulting in cut backs in spending. 

Central bank models give policymakers an indication of how long those lags are, but they are not precise. Judging how tight policy needs to be is difficult and the temptation is to keep raising rates until something breaks. This was very much the pattern in the 1980s and 1990s.

Third, that policy judgement is made more complex today by what is happening  elsewhere.

–  Monetary policy is tightening or set to tighten around the world in response to inflation, not just in the US. Global trade and external demand will be weaker as a result.

More

US inflation going back to the last century. Here

19 Comments on Media Trying to Put A Happy Face on 8.3% Inflation

  1. Even IF you got pay raises that were proportional (Which you NEVER do) the Tax Bracket creep means that you get to KEEP LESS & qualify for less deductions.

    That’s How they Fuck You!

    Too bad leftist voters do know that…

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  2. Can’t think of one purchase of anything I regularly consume that hasn’t jumped a minimum of 25% with mamy items more in the 50 to 100%+.
    8.3% is a myth. Government bookkeeping.

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  3. It’s bad and going to get worse. It took Reagan 2 years to undo the damage Carter did. The Biden years are going to make the Carter yeas seem like the Trump years.

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  4. you can’t keep printing dollar bills like they’re pages of a newpaper and not have inflation; after all, what is inflation but a dollar bill whose purchasing power has sunk to a penny.

  5. So, who’s going to talk to President Trump about pushing 0% interest rates during his term because the Europeans were doing it? Remember that?

    I nominate fnuck.

    I commented here at the time about it. It was one of his big mistakes and I’m still waiting to hear him discuss it, the FED and the future of the U.S. Dollar. The day of final reckoning is coming – and fear of addressing this problem head-on won’t be an option this time.

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