Are We Ever Getting to 2% Inflation?

Tomorrow is PCE, which is the Fed’s favorite inflation read. As we all know, they are trying to get it to 2%. The question is: are we ever going to get there?

I watched a podcast yesterday by Barry Habib. Remember, the way inflation happens is comparing the last 12 month-over-month readings. They add them all up, and that’s the current inflation number. It moves forward one month at a time.

Tomorrow’s read for March will be calculated like this: last March will fall off, this March will be added in. Then the total of all 12 months will be calculated.

Why This Isn’t the Best Measurement of Inflation

The problem is: now that inflation is coming down for quite a while, the numbers that are about to fall off are getting even smaller. Rewind a few months… around November or December, a year ago it was a .7 on the month-over-month increase. If you replace that with a .2, it’s a half a percent in improvement in the inflation rate. So it makes a really big deal.

Now, we are not going to see that more. Unless we see sub-2% comps, then it’s not going to get us there. What becomes the big worry is that we know inflation needs to come down so that The Fed will start to drop rates.

Another Thing to Be Watching

But there is one other thing that we really need to pay attention to, and that is the unemployment rate. If this rate starts to get over 4%, that is also going to get on The Fed’s radar and cause them to start paying attention.

Again, these points are credited to Barry Habib’s thinking, and I wanted to pass the information along because it seems so logical. I don’t know when we are going to see 2% inflation – the reality is that it might be a while.

We’ll see what happens. For now, the economy is staying resilient. But the unemployment numbers are starting to show some cracks there. I’ll keep you updated on what happens in the coming months.

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