[A closer look shows we’re already approaching normal.]
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WILD INFLATION? NOT ANYMORE.  
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Mark Weisbrot
December 13, 2022
Los Angeles Times (Opinion - OpEd)
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_ A closer look shows we’re already approaching normal. _

Gas prices soared earlier this year, hitting California especially
hard. But prices have fallen steeply recently and are expected to end
up as low as $4 a gallon soon., Al Seib / For The Times

 

Do Americans understand what is happening with inflation in this
country? This is an important question, because the public’s
perception can influence national policy and political choices. Before
the midterm elections one month ago, 87% of likely voters
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pollsters that inflation was extremely or very important in deciding
their vote.

Let’s take a simple example of what most Americans see most in the
news, and compare this with the data that economists, and journalists
who cover the U.S. economy, are looking at.

This week our government released the November data for the Consumer
Price Index, and the headline number was 7.1%; which was down from
7.7% last month, but still a very high rate of inflation for the
United States. The phrase, “highest levels since the early 1980s”
has accompanied much of the reporting for the last few months.

But these numbers are, in some very important ways, out of date.

It’s true that prices as measured
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Consumer Price Index (CPI-U) in November of this year were 7.1% higher
than a year earlier.

But if we look at the five months that we have just experienced (July
through November), the bigger news is really how much the rate of
inflation has been coming down.

For these five months, annualized inflation has been just 2.5%. Just
to be clear: That 2.5% is not the increase in prices over these five
months (July through November). It’s the increase in prices that we
would have if this inflation over five months continued for a year.

By contrast, the annualized inflation of the five months prior to July
(February through June) was 11.8%.

Although the Fed’s target is 2% (the Fed uses a different measure of
inflation than the CPI but pretty close to it), most economists would
not be worried about inflation of 2.5%. In fact some of the world’s
most prominent economists
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over 2%, as a target.

There is a long list of facts and issues known to economists that have
led many of us to less alarmist views than those of the wider public,
including some politicians. For starters: The spike in inflation over
the last 18 months was primarily a result
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external shocks: The war in Ukraine was a big one, especially for
gasoline prices.

Gasoline prices have been an even bigger issue in California than in
most of the country, because they are substantially higher in the
state, where they have recently fallen
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in October to $4.61 this week.

Inflation was also driven higher by supply chain disruptions, and
large shifts in demand because of the pandemic and then recovery.

There has been little
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of any self-reinforcing mechanisms such as a wage-price spiral
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prices cause workers to demand higher wages, further driving up
prices) or accelerating changes
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the expectations of consumers
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The data also show that, despite the hardships inflation has caused
for many people, tens of millions of Americans are
economically better off
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they were before the change of government two years ago. This is
especially true for people who gained employment from the record 10
million jobs that have been created since then. Wages for lower-paid
workers rose faster than inflation; workers in the hotel and
restaurant sector (production and nonsupervisory) saw their
wages rise
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3.8% more than inflation since the pandemic began.

And importantly, over the last five months, wages
for _all_ production and non-supervisory workers have risen
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4.1% annualized rate.

The misunderstanding of inflation and the economy distorts American
politics and can influence not only elections but also the most
important economic policy decisions that our government makes. The
Federal Reserve itself has caused
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of the U.S. recessions
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World War II by raising interest rates, and it may well be on track to
do that again in the coming months, potentially throwing millions of
people out of work. This would also probably have serious political
consequences.

Such a tragic mistake would be much less likely if the public —
including members of Congress and other decision-makers — had a
better understanding of the economic reality of the current episode of
inflation, as well as the available choices and consequences. The way
inflation is looking these past five months, the Fed should take a
break from its interest rate hikes before, rather than after, it
causes the next recession. That would be a much better choice than the
course it is on.

_(OPINION OP ED LOS ANGELES TIMES PUBLISHED DECEMBER 13, 2022, UPDATED
DECEMBER 14, 2022 5:25 P.M. PT ) _

_REPOSTED WITH PERMISSION OF THE AUTHOR_

_Mark Weisbrot [[link removed]] is
co-director of the Center for Economic and Policy Research
[[link removed]] in Washington and the author of “Failed:
What the ‘Experts’ Got Wrong About the Global Economy
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* inflation
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* Consumer Price Index
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* Federal Reserve Bank
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* Ukraine
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* Russia
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* supply chain
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* gasoline
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* wages
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* Jobs
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* Congress
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