The latest consumer price index (CPI) released today by the Labor Department revealed that inflation, while still high, has been slowing as of November. That bodes well, but the Fed should still stay on-mission, says CEI Senior Fellow Ryan Young:
“This is the best inflation reading in months. It lines up well with economists’ longstanding theory that the money supply is the main driver of inflation.
“The Fed stopped its massive bond-buying program in March, which is also when the Fed began raising interest rates. Factor in the lag times for these actions to work through the economy, and a slow decline in inflation is just what we should be expecting around now.
“One note of caution is that some of the slowdown in November’s CPI increase is from falling gas prices and falling car prices. These are due to supply and demand factors, not monetary factors, so they are basically noise. That means underlying monetary inflation is likely a couple tenths of a percentage points worse than the headline numbers say.
“Things are still heading in the right direction, but for progress to continue the Fed needs to stay disciplined, and Congress and the president need to lay off the spending binges.