Not everyone agrees that the war on inflation is over, despite New York Times columnist and Nobel Prize-winning economist Paul Krugman’s declaration. While Krugman argues that victory has been achieved at a low cost, critics are raising valid points.
Exclusion of Key Factors
One critique of Krugman’s stance is that he used a measure of consumer inflation that excludes food, energy, shelter, and used cars. When these factors are included, the data paints a less impressive picture, showing only an okay performance.
Out of Touch?
Some analysts simply view Krugman as out of touch with the reality of inflation. Olivier Blanchard, former chief economist at the International Monetary Fund, drew a comparison between Krugman’s assertion and President George W. Bush’s infamous appearance on an aircraft carrier during the Iraq war.
Current Inflation Figures
According to the Labor Department’s recent report, consumer inflation has risen by 3.7% over the past 12 months. Although this is a decrease from the peak of 9.1% in June 2022, it is still far from the Federal Reserve’s target of 2%.
It’s worth noting that the last time the Consumer Price Index (CPI) was below a 2% annual rate was in February 2021. This suggests that achieving sustained low inflation remains a challenge.
Assessing Inflation Trends
While most economists focus on the 12-month rate to analyze inflation trends, the three-month rate is also a commonly used gauge. The three-month core inflation rate increased to 3.1% in September, up from 2.4% the previous month.
Cautious Approach of Federal Reserve
In light of these inflation figures, Federal Reserve officials are adopting a cautious stance. Meeting minutes from September revealed that while recent data indicated a slowdown in inflation, most participants still recognized the risk of a resurgence in inflation.
The debate on inflation and its implications for the economy continues, as economists analyze the data and offer their diverse perspectives.