August Inflation Lower than Expected: Look at the Numbers

The Consumer Price Index numbers for inflation showed a lower-than-expected increase in August, but as this article notes, we still have a lot of inflation. I’m drawing my information from the Bureau of Labor Statistics, the government’s official measure of prices.

The good news is that prices increased by only 0.2% in August, but even that amount of inflation represents an annual rate of 2.4%, which is 20% higher than the Federal Reserve’s target inflation rate of 2%. Even the good news isn’t all that good.

Inflation tends to run higher in the first half of the year (which is one reason data are often seasonally adjusted). In August of 2020 prices increased by only 1.3%, so inflation this August was 50% higher in August of 2021 than in August of 2020. Again, the good news is not all that good.

Inflation over the past year, from August 2020 to August 2021, has been 5.2%, so we are headed for uncomfortably high inflation for the full calendar year. Prices have already increased by 5% since the beginning of the year, so even if prices do not increase at all for the rest of the year, we will end the year with 5% inflation.

The fact that policymakers at the Federal Reserve, and more generally, in the federal government, are not troubled by rising inflation is in itself troubling. We saw in the 1970s that once inflation is underway, stopping it is difficult and painful. Perhaps experiences from half a century ago don’t have much influence today.

People who actually buy things have told me that the prices they pay have gone up much more than the government’s official data. That may be, but I’m looking at the numbers the federal government is reporting, and I don’t see good news there on the inflation front.

Randall G. Holcombe is a Senior Fellow at the Independent Institute, the DeVoe Moore Professor of Economics at Florida State University, and author of the Independent Institute book Liberty in Peril: Democracy and Power in American History.
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