illustration of graph going up

Inflation takes off

May 13, 2021

spread between monthly changes in the core consumer price index and the Cleveland Fed's Median Consumer Price Index chat

Source: Bureau of Labor Statistics and Federal Reserve Bank of Cleveland

The core CPI was much stronger than expected in April, rising by 0.9 percent for its largest increase in nearly four decades. This was far from a concerted increase, however, as the rent, medical care, and miscellaneous components all advanced at modest 0.1-0.2 percent rates while apparel and education/communications prices both moved higher by 0.3 percent after declines in March. The Cleveland Fed’s median CPI was up by just 0.2 percent for a third straight month.

The extreme headline, then, was very much a function of COVID-driven outliers. Used vehicle prices, for example, surged by a record 10.0 percent owing to the impact of the chip shortage on new car inventories and the lack of supply from rental companies. It was also another big month for the reopening categories, as airline fares, hotel rates, auto insurance, admissions to sporting events, dresses, watches, and jewelry all turned in outsized increases.

Contrast this with the decidedly non-transitory inflation of the 1970s and 1980s, which was significantly less idiosyncratic and much more broad-based. Housing, food, transportation, medical care, and miscellaneous prices all recorded several years of double-digit increases between 1974 and 1982, a period in which it was rare for any major component to move up incrementally (food in 1976 and apparel and transportation in 1982 were the few exceptions). In this case, the outliers are still on the other side of the spectrum, backing up the Fed’s view that this spurt won’t prove sustainable. Transitory in this context doesn’t mean ephemeral – the reopening bounce still has some room to run (airfares, for example, are still 17.7 percent below their pre-pandemic level) and supply chain dislocations are unlikely to completely dissipate until at least 2022 – but this morning’s numbers, as eye-popping as they are, suggest that a pervasive, deep-set inflation is still not taking hold.

Daily Trivia

What institution of higher learning, which was launched in the basement of a Chicago-area restaurant in 1961, now has campuses on five continents but still offers only one degree?

Previous Question

Driven in part by the Great Mississippi Flood of 1927, what was the last state in U.S. to default on its debt?




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