O Inflation, Where Art Thou?
In April, the Consumer Price Index rose 4.2%, beating expectations by 0.6%. Queue panic, a series of articles and televised pundits loudly banging the inflation worries drum. However, there are several reasons to not worry (right now)
- The change is coming off from a low base from last April, when Covid shutdowns artificially slowed economy.
- The Colonial Pipeline shutdown from a cyber attack. As of this morning, the pipeline flows again.
- The Federal Reserve, and most economists, believe the price rise is temporary as the economy opens and vaccinations increase.
The cacophony of inflation bugs is as pervasive on television, print, and online media as Cicadas in DC. And like the Cicadas, they will furiously multiply and then go away for yet another long slumber. The inflation panic is not unlike the panic over a potential hurricane as bread gets cleared out of grocery store shelves. Forecasting inflation is difficult, even in the very short term. Economists, and certainly media pundits, don’t communicate uncertainty well. I’m going to try by using an analogy to weather forecasting.
Hurricane Inflation might be coming. There are signs in the economy that portend higher than normal price increases. If I drew a picture to represent the odds, I would use a hurricane forecast. The US economy lives on the Border of North Carolina and Virginia. Hurricane Inflation is predicted to land near Georgia and South Carolina. The forecast might be wrong, Hurricane Inflation may turn north. This occurrence is, thankfully, fairly improbable, at least with data from today. In other words, this is not the time to head to the bread aisle.