The Corner

Monetary Policy

Inflation Week!

(Nerthuz/Getty Images)

Inflation data updates (like shark TV programming) come in weekly spurts. Last Friday (April 9), we received the updated data for the Producer Prices Index, which tracks inflation for the cost of inputs for businesses. Then this past Tuesday, April 13, we got the star of the show, the Consumer Price Index data. Monetary policy is looking like a Great White and dollar purchasing power like an unlucky baby seal.

https://fred.stlouisfed.org/graph/fredgraph.png?g=D717

In March alone, consumer prices rose 0.62 percent. If that rate continued, that translates into an annualized rate of 7.4 percent. Year-to-date CPI inflation is running just a tad short of 5 percent.

The Producer Price Index is even worse. The Producer Price Index for final demand was up a full 1 percent in March alone, as it had been in April. Those are monthly numbers, not annual. (Producer Price Index News Release summary [bls.gov]).

The PPI for All Commodities was up 3.7 percent in March; again, that’s a monthly, not annual, number.

https://fred.stlouisfed.org/graph/fredgraph.png?g=D71K

To the degree that doves have argued against inflation concerns based on the assertion that inflation hasn’t spiked yet, to that degree recent data have turned against them.

Of course, these are backward-looking inflation data that we are looking at. The main focus should be forward-looking.

Let’s take a look at the much-debated five-year treasury TIPS spread. We see that it has been trending in the wrong direction (upwards) since the depths of the COVID shutdown, as well as year-to-date. Monthly inflation expectations as of last month are at the highest level since June 2008, and only two basis points below that high point.

https://fred.stlouisfed.org/graph/fredgraph.png?g=D73f

Inflation is rising quickly. Inflation expectations as reflected in TIPS yields are rising quickly. Inflation expectations as expressed in other markets such as commodities and foreign exchange have also risen dramatically. Inflation risks are clearly to the upside, which is exactly what one would expect given massive expansion in circulating domestic money supply.

Recommended

The Latest

The Great Elucidator

The Great Elucidator

An inspiring one-hour documentary about the conservative public intellectual Thomas Sowell serves as a superb intro to his thinking.