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The obvious - and underreported - reason why inflation dropped only 0.2% [1]

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Date: 2022-09-14

Give me the bad news first, Doc.

At 8.26%, annual inflation is simply too high. No one disputes this.

So what's the good news?

Annual inflation decreased for the second consecutive month, from 9.06% [June] to 8.52% [July] to 8.26% [August]. Still high, but the trend is encouraging.

According to BLS' calculator [see link] month over month inflation was negative for the second straight month [-0.01% in July, -0.04% in August]. This is the first time this has happened since the early months of the pandemic. The BLS CPI month over month figures were 0.0% [July] and +0.1%, [August] and I don't know enough about the data to tell you why these figures don't agree, but they are all approximately zero, so let's just say prices have been flat for two months.

So why did annual inflation change so little?

Because the month over month figure for August 2021 - which rolled out of the average to make room for August 2022 - was very low at 0.21%. Month over month for September 2021 was also quite low at 0.27%, so another month of zero month over month inflation will only bring the annual rate to 7.97%. The highest month over month growth was during the first half of 2022, and those months won't roll out of the average until the first half of 2023. So whatever the Fed does, it will be a while before it shows up in the data. Indeed, if we assume [yes, I know what happens when you assume] zero month to month inflation from now on, annual inflation will reach 3.01% in March and drop below zero in June.

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[1] Url: https://www.dailykos.com/stories/2022/9/14/2122947/-The-obvious-and-underreported-reason-why-inflation-dropped-only-0-2

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