Sorry to say, inflation hasn’t peaked yet

Larry Lindsey
Conservative Opinion

Larry Lindsey

President & CEO, The Lindsey Group
Video Library |

Are we on the downslope of inflation? The April economic numbers hinted that inflation had finally peaked when it showed consumer prices rose 8.3%, down from March’s record-setting figures. However, Straight Arrow News contributor Larry Lindsey thinks it was just an economic mirage and explains why other numbers suggest that we’re not done with record inflation just yet:

There’d been a lot of hope things were gonna peak because that would’ve made life a lot easier, but that hope was based on the same notion that inflation was going to be transitory. Remember that one? 

Well, it’s not gonna be transitory. It’s gonna be a long, hard slog to get rid of. Just to give an example of why things were, quote, so low in inflation, the Bureau of Labor Statistics surveyors found that in April, there was a 6.1% drop in gas prices. Did you notice that? 

I didn’t, but it was probably there. The problem is that as of the 5th of May the American Automobile Association reported that gas prices were back at a new record high. So whatever statistical fluke happened in April has now been wiped out. And any of the improvement we saw in the inflation number because of lower gas prices, well, is now fully in reverse.

If you look at the other numbers that people were looking at, one is something called “core.” Which is inflation when you exclude food and gasoline and energy. And that works very well for people who don’t drive a car don’t eat, but they still think of it as an important number. Core inflation was just as high as it’s ever been. It was six-tenths of a percent. 

Then there was another theory that people were about to shift from purchase of goods, into the purchase of services. And much of the inflation we’d had was in terms of goods. They were subject to supply bottlenecks and what have you. Problem is, services inflation last month for one month was 0.7%, the highest in many, many years. We’re talking now about close to a 9% compound rate of interest in services. Services by definition, aren’t subject to supply constraints, unless for, of course, labor supply constraints. Core is still high; services are still high. The drop in gas prices is going to reverse. 

So I’m sorry to leave you with some bad news, but if I were to predict the inflation rate for May, which isn’t gonna come out for until early June, I would bet it’s gonna be about nine tens of a percent. 

And we’re going to be back to record or near-record rates of inflation. 

Well, the bad news about inflation is out again. And although there’s been a lot of hopes that perhaps last month’s extraordinary, 1.2% increase in a single month would’ve marked the peak, there really is not a lot of evidence that that’s the case. 

The April headline number was a lot lower. It was only 0.3 but again, that was down from a very high number. So even if you average the two you’re running around 10% inflation. In fact, the 12 month change in prices was 8.3%. The annualized six month was 8.9% and the annualized three month was 9.9%. And so when 9.9 is higher than 8.9 is higher than 8.3… mathematically, that means inflation is still accelerating. So it is still very much with us. 

There’d been a lot of hope things were gonna peak because that would’ve made life a lot easier, but that hope was based on the same notion that inflation was going to be transitory. Remember that one? 

Well, it’s not gonna be transitory. It’s gonna be a long, hard slog to get rid of. Just to give an example of why things were, quote, so low in inflation, the bureau of labor statistics surveyors found that in April, there was a 6.1% drop in gas prices. Did you notice that? 

I didn’t, but it was probably there. The problem is that as of, the 5th of May, the American Automobile Association reported that gas prices were back at a new record high. So whatever statistical fluke happened in April has now been wiped out. And any of the improvement we saw in the inflation number because of lower gas prices, well, is now fully in reverse.

 If you look at the other numbers that people were looking at, one is something called core. Which is inflation when you exclude food and gasoline and energy. And that works very well for people who don’t drive a car don’t eat, but they still think of it as an important number. Core inflation was just as high as it’s ever been. It was six tenths of a percent. 

Then there was another theory that people were about to shift from purchase of goods, into the purchase of services. And much of the inflation we’d had was in terms of goods. They were subject to supply bottlenecks and what have you. Problem is, services inflation last month for one month was

0.7%, the highest in many, many years. We’re talking now about close to a 9% compound rate of interest in services. Services by definition, aren’t subject to supply constraints, unless there, of course, labor supply constraints. Core is still high; services are still high. The drop in gas prices is going to reverse. 

So I’m sorry to leave you with some bad news, but if I were to predict the inflation rate for May, which isn’t gonna come out for until early June, I would bet it’s gonna be about nine tens of a percent. 

And we’re going to be back to record or near record rates of inflation.

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