Good News on Inflation — With a Very Big Asterisk
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What is the main topic discussed in this episode?
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The latest inflation numbers came out and they're a big deal. The United States, we're in an inflation moment. It's driving a lot of political opinion. It's driving Fed action. It's driving all the conversations I'm a part of. And today, good news. Good news, which is that it's not as bad as we feared it was. Headline inflation came in at 3.5%. That's a high rate, but much lower than the 4.2% it had been recently. That's headline inflation. That includes food and energy. If we exclude that out and get to core inflation, then core inflation came in at 2.6%. Higher than the Fed wants it, but again, down from 2.9%. So on the surface here... If you compare where we are today with where we hoped we would be yesterday, this is good news.
If you compare where we are today with where we hoped we would have been a year ago, we're still in the midst of a very difficult inflation. Let me tell you about my immediate reaction to this report. I saw it. Actually, I had to go drop the kids off at camp, so I was in a bit of a hurry. And I saw the numbers and I thought, oh, you beauty. Look, I've been very worried about inflation. A lot of us are very worried about the rising cost of living right now. And while the numbers were high, they were less high than Wall Street had expected. So the really striking thing is actually if you compare the average price level this month to last month, it actually fell significantly. Now, before you come at me, the idea that the cost of living fell, I know it feels utterly preposterous to a lot of people.
But what happened, of course, is with the announcement of the ceasefire, Man, I remember those days. Anyway, with the announcement of the ceasefire that led energy prices to decline, energy prices fell, prices through the rest of the economy rose. And that's why the headline is that the cost of living fell.
What do the latest CPI numbers (headline 3.5% and core 2.6%) actually say about inflation now?
It's just that the energy situation last month is not as bad as it had been before. Previously, but let me come back to it. One of the ways we judge these reports is how's inflation doing relative to expectations? And this is very, very clearly good news, which is there's less inflation in the system than many had feared, but there's still more than all of us want. One of the questions I get asked a lot is, there's so many numbers in this report. Which numbers matter most for the typical American in your pocketbook? And I'm going to be a frustrating economist and say on the one hand, on the other, and I mean it. The first thing is there's what we call headline inflation. That's the number you'll see at the front of the newspaper tomorrow.
That measures the overall change in the cost of living. And that says that the cost of living rose by 3.5% this year. That's exactly why it feels like there's less money left over at the end of the week. The answer is once you've paid your grocery bills, once you've filled up your car, there's less money there. This is the official statistician saying, hey, you know what? You're not imagining it. But I also know something about you. You don't care just about the present moment. You care about the future.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:00–2:43
2
What do the latest CPI numbers (headline 3.5% and core 2.6%) actually say about inflation now?
2:43–7:59
3
Why did headline inflation fall this month and how did energy prices drive that change?
7:59–13:09
4
How should consumers interpret headline versus core inflation for their household budgets?
13:09–24:42
Speakers
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