The Inconclusive Inflation Report

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The August inflation report, released today, doesn’t tell us much about whether inflation is here to stay or transitory.

The headlines aren’t sure what to make of it. “Inflation Eased in August, Though Still High,” says the Wall Street Journal. “Inflation Cooled Last Month. It’s Still Running High,” says Barron’s. “Consumer prices are up slightly in August in measure of slowing inflation,” says UPI.



Some people are very sure in their conclusions, however. John Catsimatidis tells Fox Business that “inflation is here to stay.” TD Bank’s William Fink writes at MarketWatch that inflation will be cut in half to 2.5 percent by the end of the year.

What’s really going on? It’s not totally clear.

The Consumer Price Index in August was up 5.3 percent compared with August of last year. That’s roughly the same as July’s annual inflation rate, which was 5.4 percent. That’s well above the Federal Reserve’s preferred inflation rate of 2 percent. That’s steady, relatively high inflation.

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But the month-to-month increase is slowing. Prices in August were only 0.3 percent higher than they were in July. The monthly inflation rate peaked in June, when prices increased by 0.9 percent. So the rate at which inflation is increasing has declined by two-thirds since June. That’s evidence for the transitory-inflation crowd.

In other words, the topline conclusions have something for everyone. This report had the potential to give us some more clarity on the inflation situation, but the data did not comply.

Looking down into the more specific information, we find that the car market is finally cooling off. “The index for used cars and trucks declined 1.5 percent in August, ending a series of five consecutive monthly increases,” the report says. The prices for new cars increased 1.2 percent, but that’s less of an increase than last month. The White House has been insisting that the inflation we’ve seen is largely attributable to the car market, and they do have a point that it has been yanking up the average.

The stuff people really notice — and politicians really like to talk about — are food and gasoline. Food inflation is down (from 0.7 percent last month to 0.4 percent now). Gas inflation is up (from 2.4 percent last month to 2.8 percent now). So expect plenty of talk from politicians on both sides about how their policies are working or how the other guy’s policies would be bad for everyday people.


An economist quoted in the Journal said, “Peak pandemic pressures have likely passed, but significant pressures remain.” That’s the kind of “but-on-the-other-hand” economist answer that frustrate people looking for a clear answer. Really confident predictions can be fun, and if they end up being right, you look really smart. But this month’s inflation report doesn’t give any strong indication one way or the other about where inflation will be in the future. Take any confident predictions with a grain of salt.


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