I get that the CPI is up 3.9% over the past year, and that’s a tough number for households trying to make ends meet on shrinking real paychecks.
But it’s not an indicator of accelerating demand, faster wage growth, or stuff that should make a hawkish Federal Reserve governor stick out their talons. In fact, strip out energy—which is up almost 20% over last year—and food, i.e., look at core inflation, and the picture is quite different with the core up 1.9% yr/yr.
If there were demand pressures in the economy, we’d see them in wage trends, but we don’t (see chart), because workers simply don’t have any bargaining power in this job market.
It’s true that with price pressures, you have to worry about inflation expectations—where people think core prices are going down the road. But expectations remind pretty dim based on concerns about growth in Europe and even China.
So, if you’re a policy maker at the Fed or in Congress looking for an excuse to sit on your hands and not do anything to help people get back to work, price pressures ain’t it.
Souce: BLS, CPI and Employer Cost Index