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The US Bureau of Labor Statistics said Tuesday that the Consumer Price Index fell 0.4% in June, bringing the inflation rate over the past 12 months down to 3.5%. That’s good but not good enough. Inflation is still too high. Even with the drop in June — which was due in no small part to falling gasoline prices — inflation has averaged 3.8% over the prior three months, almost double the Federal Reserve’s target of 2%. Neel Kashkari, president of the Minneapolis Fed, recently said what everyone knows: People hate inflation, which they have been dealing with for more than five years, and every time they go to the grocery store they “feel they are falling further and further behind.”
No lie there. When wages don’t keep up with inflation, people suffer because they are effectively poorer. Just as bad is the unpredictability: When they go shopping, people don’t know what things will cost. In finance, an asset with a more variable return is worth less. Unpredictable inflation does the same thing to incomes. Inflation adjusted average hourly earnings have fallen 0.33% over the April, May and June period, versus an average gain over the past 20 years, according to data compiled by Bloomberg.
But while everyone can agree that the rate of inflation is too high and too uncertain, no one wants to admit that this may be the new normal.
Continue reading the entire piece here at Bloomberg Opinion (paywall)
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.