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What inflation?

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As usual, the media are having trouble reporting on the changing inflation picture in a coherent way. Thus you can read stories this morning that “inflation stayed high,” since the year over year CPI figure for December featured a 6.5% increase. You can also read stories emphasizing that the CPI actually declined in December from the previous month, which is also true.

One thing I’d like to see are stories pointing out that over the last six months — a much more meaningful figure than the month to month change of course — consumer prices have increased at an annualized rate of just about 2%, which is to say that for the past half year inflation has been at the target rate that that the Federal Reserve aims to maintain.

From this perspective, there was no inflation at all over the entire second half of 2022, if by “inflation” we mean a rise in prices that’s considered in some way problematic (Again a 2% annual increase in the CPI is considered more or less ideal by the Fed, because it is extremely important not to flirt with deflation, which is far worse for an economy than inflation).

Anyway, this is certainly good news, although it remains to be seen whether the Federal Reserve will back off from its pre-existing plans to continue to raise interest rates through the spring.

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