I cannot understand why so many in Admin & out cling to the idea that inflation is caused by bottlenecks & will soon recede to normal levels. Of course there is uncertainty but the idea that inflation will revert soon to levels anywhere near Fed’s target looks like a long shot.
Nonpartisan BLS CPI report refers to inflation as “broad increases in most sectors…similar to last month.” Inflation is not @ bottlenecks. Less than 10% of index saw inflation below 3% & aside from housing where figures are problematic, the share below 4% is less than quarter.
We have all seen house prices & rents soar. Home prices based on Case Shiller are up 15 to 20%, as are rental prices, as reported by the nation’s largest landlords. If we assume 17% residential inflation, both CPI and core CPI would have exceeded 10 percent last month.
Either the official indices are just wrong or more likely 3 to 4 points of inflation from housing are coming in 2022, even if there is no further increase in rents or home prices. This effect far exceeds any benefit from lower energy or used car prices.
Inflation has trended up through 2021 and the economy is growing far more rapidly than potential output. Given housing prices and tightening labor markets, there is no compelling reason to expect major deceleration in inflation.
But, even if inflation subsided to .2 percent a month, the annualized inflation rate would be 6.5% in March 5.1% in June and 4.0% before the election in September.
My guess is barring a major recessionary or financial shock next fall, headline inflation will round to 5 percent. We are beyond where the Vietnam inflation took us but still have plenty of time to stop a late 1970s situation from developing, if we have the will.
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