Fed Chair Powell ’s Story about Service Price Inflation Is Untrue

Alan ReynoldsInThe Wall Street Journal’s “Year ‐​End Review&  Outlook,” Sam Goldfarb deftly summarized a recent shift in the Federal Reserve’s focus away from PCE inflation —which slowed to a 2.4% rate from July to November— to a diverse hodgepodge of services prices.“In recent remarks,Fed Chairman Jerome Powell has emphasized that, even in recent months, there has been only a  modest slowdown in price increases for core services outside of housing. That is an area of the economy seen as most sensitive to labor costs, which have shown few signs of decelerating.”Although Mr. Powell ’s latest story may seem a useful pretext for ignoring increasingly obvious signs of slowing inflation since June (or for raising Fed interest rates relentlessly), it suffers the unfortunate defect of being entirely false.My Table shows The Personal Consumption Expenditures (PCE) price index numbers for the entire index, for goods and services separately, and for 15 representative categories of services aside from housing (which is shown but excluded from average inflation rates in the last row). A  rough unweighted average of the average annual inflation rate among those 16 “core services less housing” was 7.3% before June but 3.4% since. Few would call that a “modest slowdown.”The last two columns compare the total percentage change (not the monthly or annual change) from November 2021 to June 2022 with the changes from June 2022 to November 2022. All of Ch...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs