John Maynard Keynes famously said: “When the facts change, I change my mind. What do you do sir?”
One has to hope that now that the inflation facts have changed, U.S. policymakers will not be quite as dismissive as they have been to date as to the real risk that the country could be heading towards an unwelcome period of higher inflation.
One indication that the inflation facts have been changing has been the very much faster than the anticipated pace at which officially measured inflation has been increasing. Over the past year, the consumer price index has risen by 4.2 percent or at approximately double the Federal Reserve’s 2 percent inflation price target. Meanwhile, over the past three months, the Personal Consumption Expenditure Price Index, excluding volatile food and energy prices, increased at an annualized rate of 4.9 percent. This latter measure, which is the Fed’s favorite inflation index, has now been increasing at its fastest pace since 1990.