We got some good news last week. Or, at least, the news on inflation was less bad. When
dealing with the dismal science of economics, “less bad” is good.
The annualized inflation rate for the month of April dropped below 5% for the first time in two
years. The accelerating rate surpassed the Federal Reserve’s target rate of 2% the Spring of
2021, and peaked at 9.1% last June. A drop from 9.1% to April’s reading of 4.9% shows
progress, but we’re still more than double the Fed’s target rate.
It’s become clear from observing news reports, political claims, and random social media
comments that too many of us don’t really understand what these numbers mean. The biggest
tell is when you see someone asking when prices are going to come down.
What we’re currently experiencing is disinflation. That means prices are still going up, but
they’re going up at a slower rate than they were. If this rate were to hold steady, your cash
money would be worth 5% less a year from now than it is today.
This is the reasoning for cost of living adjustments (COLAs) given to recipients of programs like
social security, some defined pension programs, and many public and private employers.
COLAs ensure that for the same work (or pension), you can generally buy the same basket of
goods used to measure inflation.
The most noticeable place we see inflation is at the grocery store and at the gas pump. This is
why when you listen to explanations of the inflation rate, you’ll hear one rate for “core”
inflation that excludes food and energy. We’re quite familiar with the prices of fuel and food
having wild spikes upward, and then usually having slower and more gradual price declines.
The core index that deal with items which have less volatile prices, don’t tend to come back
down. Inflation in our modern economy is more or less permanent. Otherwise we would
experience deflation instead of disinflation.
Deflation would be an entirely different set of problems. As much as we would…
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