Mixed Inflation News for January

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Today’s inflation news is mixed. We’re still almost certainly past the worst of the COVID inflation, but January’s numbers took a turn for the worse. While the year-over-year CPI increase went down slightly, from 6.5 to 6.4 percent, inflation during the month of January was 0.5 percent, which was the highest since October. January’s CPI increase was close to the levels seen early in 2022 when inflation was at its worst.

Part of this was expected. Every year, the Bureau of Labor Statistics updates the way it calculates CPI. That means today’s numbers for January 2023 are not an apples-to-apples comparison with any CPI numbers from 2022. The difference isn’t earth-shattering, but it does result in a slightly higher number. We should keep this in mind going forward.

This year’s CPI calculations weight housing more heavily than last year’s did. Housing prices have been increasing faster than the overall inflation rate because it is difficult to build new housing. Housing prices are increasing on their own due to monetary inflation. But environmentalists and NIMBY (Not-In-My-Back-Yard) activists are doing damage on top of inflation by wielding excessive zoning and permitting regulations to choke supply, even as population grows.Underlying monetary inflation is still too high. As long as the Federal Reserve continues to keep the money supply from growing too fast, it will come down with time. But the new CPI also captures non-inflation price increases. These are important, and policymakers need to loosen NEPA and other permitting processes and give NIMBYs fewer veto opportunities on new housing proposals. But these problems are not necessarily related to the monetary inflation that has been the source of most of our recent economic worries.