by Alexander William Salter
The American Institute for Economic Research
Despite extraordinary monetary tightening by the Federal Reserve, inflation remains elevated above its 2 percent target. Even more worrying, inflation accelerated during the first quarter. The Consumer Price Index (CPI) rose at an annualized rate of 4.5 percent over the last three months. The figures for Personal Consumption Expenditures Price Index (PCEPI) are similar through February, with March data set to release later this month. It looked like we had inflation whipped as recently as December. Now it looks like price stability is slipping away.
Many commentators (including myself) were worried monetary policy had become too restrictive as inflation eased. Others worry the Fed is missing the signs of an inflation resurgence, just as they misdiagnosed inflation beginning in 2021 as “transitory.” Clearly there is room for reasonable disagreement. But there’s still a puzzle here: by conventional measures, money looks tight. It’s not clear what needs to happen next to get disinflation back on track.