Inflation numbers more nuanced than they seem: CEI analysis

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The Consumer Price Index numbers released today for February 2024 shows inflation increased to 0.4 percent, up from 0.3 percent in January. CEI senior economist Ryan Young explains why Core CPI numbers tell a more nuanced story and what these numbers mean for the broader economy.

“Headline CPI inflation numbers sped up in February. Monthly inflation increased 0.3 percent in January, and 0.4 percent in February. Year-to-year inflation is 3.2 percent, up from 3.1 percent in January. But as always, things are a little more complicated under the surface.

“The Core CPI is up 3.8 percent over the last year, or nearly double the 2 percent target rate. This removes food and energy prices, which are prone to wild swings based on supply and demand, rather than the monetary inflation the Federal Reserve is concerned with.

“Housing prices are the biggest culprit in Core CPI’s increase. Part of the problem is from the Fed raising interest rates in order to slow inflation. But housing is also subject to supply and demand problems, same as food and energy. That has been driving housing prices up faster than inflation for decades.

“No matter how you slice it, inflation remains well above target. The Fed has already done almost everything it can on monetary policy.

“The overall economy remains in good shape. GDP is growing faster than 3 percent, compared to a 2 percent average. Unemployment has been below 4 percent for almost two years now. If unemployment begins to slow, it is more likely because the economy is at or near full employment rather than due to any fundamental problems. That should give the Fed the ability to hold rates high for now, and will hopefully prevent another inflationary spending binge from Washington.”