There are a bunch of other factors that should dampen inflation but aren’t yet reflected in government reports. Official estimates of housing costs tend to lag well behind listed rents, so they’re only now capturing the big surge in 2021 and won’t reflect moderating rents for a while. Shipping costs are down, and, in general, supply-chain problems seem to be easing.
So we ought to be getting some short-term inflation relief, starting more or less now. And there are two big reasons to expect the coming inflation slowdown to persist.
First, while we keep hearing ominous warnings about a wage-price spiral, that’s hard to manage if, well, wages refuse to spiral. And the rate of growth in average wages has actually been slowing, from around 6 percent at the beginning of this year to around 4 percent now. That’s still somewhat too high to be consistent with the Fed’s target of 2 percent inflation, but not by a lot.
Second, while the Fed is trying to fight inflation by raising interest rates, we shouldn’t expect to be seeing much, if any, payoff to this effort just yet. Long-term interest rates, which are what matter for the real economy and reflect both current Fed policy and expectations about future policy, didn’t really take off until March. And nobody, but nobody, should have believed that this rate rise would have a noticeable effect on inflation in a scant three to four months.
That is, if the Fed’s change in policy is going to bring inflation down, that’s all going to happen in the future. The markets think the Fed will contain inflation, and so do I; but June’s consumer price report tells you nothing, one way or the other, about whether we’re right. It’s just too soon.
So the message we’re getting from the markets — a message backed by a lot of data that hasn’t yet made it into official consumer price numbers — is, don’t panic. Inflation is not, in fact, out of control, though the pain many consumers are feeling right now is.
