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On Wednesday, the consumer price index clocked year-over-year inflation in at 7% — the fastest pace since 1982.
That number compares December 2020 to December 2021, but the month-to-month numbers aren’t as scary. Prices rose 0.5% in December, which was better than November, which was better than October.
Are we finally at the inflationary peak?
There are reasons to think monthly inflation may have already maxed out.
“We are seeing some deceleration,” said Alan Detmeister, a senior economist with UBS.
Deceleration, as in prices are still rising, just not as fast as they were. Flight and lodging prices might come down, briefly, because of omicron dragging down demand. Car prices, economists say, are set to come off their highs as production starts to come back. Other goods seem to be cooling off, too.
“You know, energy, food prices, future prices are suggesting oil has kind of reached its peak,” Detmeister said.
But, Detmeister said core inflation — basically everything else — is not slowing down yet.
There will probably be another few months of eye-popping 7% annual inflation before it does come down, according to Larry Summers, former U.S Treasury secretary and current Harvard economist.
“I don’t see anything that changes the basic fact that we have an increasingly entrenched inflation problem,” he said.
Basically, all the transitory drivers of inflation may be falling away, leaving us with bigger problems.
“The most fundamental factors driving what we’re seeing are pervasive labor shortages, pushing up wages, which are the most fundamental labor cost, and that’s what’s happening in the housing market,” Summers said.
But economists disagree on how persistent all these drivers will be.
“The optimistic view is that omicron will tear through the population very quickly, it will be mild, and we will come out in a better place as far as the pandemic goes by March,” said Joe Gagnon, a fellow at the Peterson Institute for International Economics. “And people might actually be more willing to go back into the labor force,”
And that might keep labor costs under control. Of course, it also will trim wage growth.
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