Whenever we discuss inflation, it is absolutely critical for people to understand that inflation itself is the measure of the percentage increase in a price over a period of time.
It is entirely possible, I would say absolutely guaranteed, that prices will increase even more this year as inflation begins to drop. This will be the economic story on the backside of the inflation hurricane as the Fed starts to increase interest rates.
Example:
♦ 2021: A loaf of bread increases in price 50¢ from $1.00 to $1.50, a rate of inflation of 50%.
♦ 2022: That same loaf of bread increases in price by 60¢, from $1.50 to $2.10, a rate of inflation at 40%.
The price of the bread increased more in 2022 than 2021, but the rate of inflation dropped from 50% to 40%.
The White House and Federal Reserve state, correctly, that inflation is likely to drop. However, the actual prices of the products are rising at a greater rate. This is the critical component of the inflation story that will remain with us throughout 2022. Inflation is not measuring the increase in the price of an item. Inflation is measuring the rate of the price increase as a percentage.
This is the context for the Federal Reserve to state today, they “hope” inflation slows down, because they are going to raise interest rates regardless of what is happening with the price of goods and services:
WASHINGTON, Feb 9 (Reuters) – The U.S. economy may be nearing a turn lower in inflation, Atlanta Fed President Raphael Bostic said on Wednesday, though he added he is still leaning towards a slightly faster pace of interest rate increases this year.
“I am very hopeful we are going to start to see that decline … There is some evidence we are on the cusp of that,” Bostic said in an interview with CNBC.
While Bostic still expects three quarter-percentage-point rate increases will be appropriate this year, he said: “I am leaning a little towards four. We are going to have to see how the economy responds as we take our first steps,” with an initial rate increase expected in March. (read more)
Energy prices rose approximately 40% throughout 2021, with gasoline increasing around 60%. It is likely that prices will increase even higher in 2022 than they did in 2021; however, the rate of price increase will be lower (the inflationary measure). This is why the backside of the inflation hurricane is actually stronger and more damaging to the middle class than the original front side impact.
Highly consumable goods like food, fuel and energy, will have even higher price jumps in 2022, but the rate of inflation may drop.
Last point.
Remember, the Biden economic agenda (and the energy, trade, monetary, fiscal policy behind it) is what the Obama economic team always wanted to do; however, they were limited in execution, because they did not want Obama to suffer the political damage. With the disposable Joe Biden in office, their previous restraints are removed.
The economic team behind all of these policies do not know the scale of what damage will happen, but they do know the damage will be severe. The economic outcome is not as important to them as the underlying ideology they are chasing.
They justify the damage, amid themselves internally, by saying the ends (Green New Deal) justify the means (economic collapse), and that approach inherently makes Build Back Better a self-fulfilling prophecy.