Recent releases from the Bureau of Economic Analysis show that prices rose sharply in April 2022, although not as rapidly as in the previous month. The Personal Expenditure Price Index (PCEPI), the Federal Reserve’s preferred measure of inflation, rose 0.2 percent last month. It rose 0.9 percent in March and 0.5 percent in February.
Some will undoubtedly celebrate the fall of inflation. But a closer look at the information reveals little reason to celebrate. The month-on-month decline seems to have been driven entirely by the temporary rise in food and energy prices in March. More broadly, inflation remains high.
The title and the original PCEPI are presented in Figure 1 along with the estimated 2-percent growth path from January 2020. Headline PCEPI, which includes all prices, grew at a steady compounding rate of 6.1 percent from April 2021 to April 2022. It has increased. 4.0 percent per year since January 2020, just before the epidemic. Prices are up 4.7 percentage points today, in line with the Fed’s average inflation target, which has risen 2 percent over the period.
The core PCEPI, which excludes food and energy prices, grew at a compounded annual rate of 4.8 percent from April 2021 to April 2022. This is an increase of 3.3 percentage points per year since January 2020 and is currently 3.2 percentage points higher than the 2-percent increase. Path
As Figure 1 shows, the slowdown in headline inflation does not match the corresponding decline in the original inflation. Supply disruptions: Most notably, Russia’s invasion of Ukraine on March 7 increased food and energy prices. These prices have remained high. The BEA reported that energy prices in April 2022 were 30.4 percent higher than the previous year, while food prices were 10.0 percent higher. But they are not growing so fast. Food prices rose 1.0 percent in April from 1.4 percent a month earlier. Electricity prices, which rose 11.7 percent in March, fell 2.8 percent in April.
Taken together, the data shows that prices continue to rise as fast as they did before the rise in March.
The prudent measures also give little reason to believe that the tide has turned. Bond traders are currently setting prices at around 2.76 per cent per annum for the next five years and 2.42 per cent per annum for the next ten years. As Figure 2 shows, BreakEven PCEPI inflation — measured as a spread between traditional and inflation-indicating treasuries, adjusted for the average difference between PCEPI and consumer price index from 2010 to 2020 যেখানে decreased last month, but remained above It was mid-February. On February 15, bond traders set prices at around 2.69 percent per annum for the next five years and 2.28 percent per annum for the next ten years.
The Fed raised its federal funds rate target by 50 basis points in May 2022 and looks set to follow the same rate hike in June and July. The price level data policy from April does not show any expected effect. We will probably start to see a steady decline in inflation next month, but the BreakEven PCEPI data suggests bond traders are not confident. The Fed will have to do much more than it currently expects to bring inflation – and inflation expectations – down to 2 percent in the near term.
William J. Luther
William J. Luther is the director of AIER’s Sound Money Project and an associate professor of economics at Florida Atlantic University. His research primarily focuses on the question of currency acceptance. He has published articles in leading Scholarly journals, including the Journal of Economic Behavior and Organization, Economic Inquiry, the Journal of Institutional Economics, Public Choice, and the Quarterly Review of Economics and Finance. His popular writings have been published in The Economist, Forbes and US News & World Report. His work has been featured in major media outlets including NPR, Wall Street Journal, The Guardian, Time Magazine, National Review, Fox Nation and Vice News.
Luther earned his MA and PhD. He holds a BA in Economics from George Mason University and a BA in Economics from Capitol University. She was a participant in the AIER Summer Fellowship Program in 2010 and 2011.