Hiltzik: Inflation is starting to come down

For fans of cryptanalysis, the home page of the Wall Street Journal on Thursday morning provided plenty of material to entertain and confuse.

There is an article documenting the sharp decline in the price of memory chips, which are essential parts in cars and smartphones and home appliances. Another problem is the decline in shares of fertilizer companies due to “falling crop prices”.

A third article, however, reported a narrowing trade gap, driven by Americans’ return to foreign goods. There was also a report that interest rates on 30-year mortgages had plummeted, from 5.7% a week ago to 5.3%.

Against this backdrop, as the Journal observed, the minutes of the Federal Reserve’s rate-setting meeting released on Wednesday showed that the inflationary panic prompted the decision to raise rates by 3 percent. /4 percentage point, the biggest increase in 28 years.

What’s with the picture?

Signs are growing that the inflation rate peaked in February and March. That wasn’t so evident in the most recent data releases from the Bureau of Labor Statistics
but may become apparent with the agency’s next report on the consumer price index, due July 13.

It is correct to stipulate that when ebbs inflation and prices begin to fall, the cost of many goods and materials remains higher than they were a year ago. That means the pain of the last few months will last.

For instance, the national average price of gasoline fell over the better part of a month, to an average of $4.75 per gallon for the regular grade, down from $4.92 a month ago, according to AAA. That should bring some relief to car drivers, but a year ago the average price of regular gas was $3.14.

However, the declining rate of price growth suggests that the Fed, which is driven by inflation and tends to resist the last fight, may have misinterpreted the economic environment.

The minutes released Wednesday, along with subsequent statements by Fed Chairman Jerome Powell and other Fed governors, show that their determination to keep inflation under control is so firm that they are willing to risk agitation. economic downturn to achieve the goal.

As we have observed before, sacrificing work for the sake of reducing inflation is a cure worse than the disease. More importantly, it places the burden of monetary policy on the backs of the wrong people. Qualified workers and their wages were not the cause of inflation in the past year. Instead, it was driven by structural problems in global supply chains in the wake of the pandemic and by corporate actions designed to enhance profits, which are then split among executives. and shareholders.

Indeed, the main inflation remedy in the Fed’s medicine cabinet – raising interest rates – is not working against the most important drivers of inflation today. Nothing on US interest rates will affect constraints on supplies of computer chips and other goods and parts due to COVID-related factory closures in China. The rate hikes did nothing to reduce logjams at US ports that prevented products from reaching consumers.

The price of oil, as measured in global markets, is influenced by the laws of supply and demand, but if Powell and company aim to reduce U.S. demand by constraining its economy as a whole, there will be a lot of collateral damage to US households because of marginal returns. , the best.

https://www.latimes.com/business/story/2022-07-07/inflation-is-coming-down Hiltzik: Inflation is starting to come down

Edmund DeMarche

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