The second paragraph:
On July 26, 2023, the Federal Reserve announced another quarter-point hike. That means U.S. rates have now gone up 5.25 percentage points over the past 18 months. While inflation is now coming down in the U.S., the aggressive monetary policy may also be having significant longer-term impact on countries across the world, especially in developing countries. And that isn’t good.
Before we get into whether monetary policy of the past 18 months has been good or bad, can we take a moment to get our facts right?
Here's a look at US inflation since 2010:
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| Graph #1 |
In blue, the graph shows CPI inflation as commonly reported in the news, measured as the percent change from a year ago.
In dull red the graph shows CPI inflation measured as the percent change from the previous month. To scale these monthly values up and make them comparable to the "change from year ago" numbers, I multiply FRED's monthly values by 12.
The dashed line, bright red, shows the 2% level. Two percent is the "inflation target". When inflation is above the target, monetary policy will want to bring inflation down.
Judging by the blue line, the rate of inflation started rising in early 2021. It has been falling since June 2022. And as of June 2023 it reached 3.09%, approximately one percentage point above the target rate.
The dull red monthly data shows a similar pattern: rising since early 2021, then falling since mid-2022, and now very close to the inflation target.
According to the Fortune article, dated 5 August 2023, "inflation
is now coming down in the U.S." That's not how I see it. As I see it,
inflation HAS COME DOWN. Inflation IS down. It has not stabilized yet,
or it is still too soon to say that it has stabilized, but inflation is
back down to the Fed's 2% target or within a hair of it.
The media in general seems to have completely missed the fall of the rate of inflation that began in mid-2022. Month after month they reported the "percent change from year ago" rate, as if prices were rising at that rapid pace every month. No. Prices did rise at an increasingly rapid pace until mid-2022, but since that time prices have increased at a decreasingly rapid pace.
Their reporting was apparently designed to create the biggest bang-for-the-buck the media could get out of the inflation story. (You should be at least as angry about the reporting as you have been about the inflation.)
It is true of course that prices were still rising in the months after June 2022. But prices were rising less rapidly; progress was being made. The media couldn't trouble itself to report that one little fact.
Just so you
know: Prices would still be rising even if inflation was exactly on
target, the 2% target. That's what the "2%" means: a price increase of
two percent per year. That is the goal of monetary policy. Just so you know.
As a reminder, the dull red inflation value
as of June 2023 was 2.16%. That's not even newsworthy, unless you want to
talk about this period of high inflation being at an end.
PS: Cristina Bodea is probably right: The Fed's anti-inflation policy probably was not "good" for other nations, especially developing nations. As for myself, in the fight against inflation I think we should depend less on monetary policy, and more on fiscal policy.
1 comment:
The reporting was apparently designed to create the biggest bang-for-the-buck the media could get out of the inflation story. It is true of course that prices were still rising in the months after June 2022. But prices were rising less rapidly. Progress was being made. The media couldn't trouble itself to report that one little fact.
The same media then goes on to report Biden's presidential polls indicate that people are still troubled by people's concerns about inflation -- even though inflation has been coming down now for more than a year.
The media I'm talking about is the media my wife watches: GMA, and the morning news on ABC and CNN.
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