You may think inflation is like the weather — everyone complains, but can’t do anything about it.
Except the Federal Reserve doesn’t believe that. And investors continue to show confidence in the central bank’s willingness to take on generational-high inflation while a war is waged in Eastern Europe.
The bankers and investors will get the latest evidence of why the Fed will raise its target short-term interest rate in mid-March in the week ahead. The monthly consumer price index surged 7.5 percent in January. Removing food and energy price hikes, inflation still was up 6% — three times higher than the Federal Reserve’s long-run goal.
Inflation did not cool much last month. A year ago, price hikes were well contained. Twelve months later, the cork is off, and February’s data will mark a full year of inflation growing at more than the Fed’s 2% target.
Beyond the eye-catching headline number — what is inflating inflation?
The price changes of all products are not equal when computing inflation. The CPI is a weighted index. In the nomenclature of government statisticians, the price of shelter is more influential than the price of anything else, and more influential than the prices of almost everything else combined. It’s important to note the CPI doesn’t capture home prices per se, but the cost of “renting” a place to live. The shelter portion of the CPI is running hot — 4%. That’s well below the overall number, but is important because it accounts for a third of the index.
Still, it doesn’t account for the super-hot inflation. Household goods are about 20% of the overall number. Stuff like curtains, furniture, tools and clothes are considerably more expensive than a year ago. So are groceries and, of course, gasoline.
The Fed interest rate hikes that will begin later this month won’t have much impact on those last two items. That leaves a tighter space for the Fed to attempt to let the air out of inflation.
