A rise in US prices to the highest level in three decades turned up the heat on the Federal Reserve as inflationary pressures push rate-setters towards winding down huge stimulus.

The US central bank’s preferred measure of inflation – core personal consumption expenditure (PCE) price index – edged up from 3.4pc to 3.5pc year-on-year in June, with forecasters predicting prices will move even higher.

Well, yes, that is a disturbing number and if it continues for more than another few months then welcome back to the roaring 70s.

But journos? Or even Tom Rees. Inflation is not the level of prices. It’s the change in them, the delta.

If inflation is 0.1% then that’s a rise in US prices to the highest level in forever. What has happened is a rise in the rate at which prices change to the highest in three decades.

7 thoughts on “Sigh”

  1. Supply-driven inflation is a curious beast.

    Let’s say that every day you cross a bridge to leave home, paying a £1 toll each time. One day the bridge collapses, and now you have to take the ferry across which costs £2. (Also, all delivery vans and tradesmen have to pay that toll too.) Your personal inflation rate is 100%!

    But after a year, the inflationary effect of the collapsed bridge has washed out of the figures, and your inflation rate is back to normal again. One day the bridge may even be rebuilt, and you’ll enjoy deflation for a while.

    This is what seems to be happening in the world right now. Global trade networks have collapsed because of Covid (and arguably because of political meddling & protectionism). Even if those networks are never rebuilt, this inflation will work its way out of the system within a year.

    Central banks will therefore adopt a “wait and see” stance, refusing to act until this transitory inflation has washed out of the year-on-year figures. After the year is up, they’ll declare victory and maintain low interest rates.

  2. And just by the way, it appears core PCE does not include energy and food prices, which are seeing the most dramatic increases. Count on the usual suspects to try to ignore the real impact, but consumers aren’t going to miss this.

  3. The bond market seems pretty cool about it, no tantrum that I can see.
    It’s quiet out there … perhaps too quiet …

  4. UK alone printing best part of 500 billion funny money in 12months plus is not transitory ( just fucking tory).

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