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Monday, November 29, 2021

Inflation: Farewell to Transitory

Local News

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(AndreyPopov/Getty Images) The week of November 8: inflation, climate, antitrust, and much more.

I  began this week expecting that the next Capital Letter was going to be about the second week of the climate talks in Scotland, but apart from the observation that a (somewhat nebulous) joint climate declaration between the U.S. and China only underlines the extent to which the administration’s climate agenda is weakening this country’s strategic position, any other comments I may have will have to wait for another time. For now, please read Kent Lassman’s commentary in the weekly roundup below.

No, this week the scene — like, in all probability, our savings — was stolen by inflation, no longer just a ghost at the feast but a very real presence. It’s here, and claims that it is only “transitory” will no longer wash.

Bloomberg’s John Authers:

You will probably know the headline numbers by now. The important point is that the subtler figures compiled by various departments of the Federal Reserve were considerably more concerning. Six months ago, inflation was a story of extreme blips in prices of goods directly affected by the pandemic. Now, those effects are waning, but broader gauges are surging.

To start, the Cleveland Fed publishes a “trimmed mean” (excluding the biggest outlier components in both directions) and a median level of inflation. The trimmed mean, which is particularly popular with economists, has jumped to its highest in three decades. The median, hitherto encouragingly contained, is at its highest since the crisis month of October 2008.

Alternatively, the Atlanta Fed produces numbers on flexible and “sticky” inflation. Prices of some products and services adjust swiftly, while others take months. What central bankers want to avoid is a rise in sticky inflation, as this by definition will be difficult to reverse. On an annualized percentage basis, last month saw the sharpest rise in sticky prices since January 1991.

Check out the whole piece for other measures of inflation, including an indicator of core (sort of) inflation that the Bureau of Labor Statistics mysteriously started publishing earlier this year (it excluded

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