The Latest Inflation Report, Explained | Diving In

Okay, let's start at the beginning, and the beginning is what was inflation over the past year.

It came in at an eye-popping three point seven percent.

Remember, the Fed's goal is generally to keep inflation round about two percent.

It, it doesn't actually spend all its time focusing on this measure, but this measure tells you a lot about what's going on.

Um, so we're well above the Fed's target.

There's three ways to think about this.

You could think about this as how is inflation in absolute terms, and the answer is too high.

The second way is to think about what's going on with the trend, and at a minimum, we're confident headline inflation is not trending down.

It may be starting to turn up.

A lot of this is about energy prices.

We'll get into that in a moment.

So maybe it's just sort of stuck at that troublingly high level.

Another way to look at this is how was this relative to market expectations.

What the, the wonks on Wall Street expect ahead of this was inflation to be a little bit lower, maybe three point six.

Some people even thought three point five percent.

So the big news today is that inflation... not just that inflation is high, I think we all know that, but inflation is higher than we had expected.

So the news here is bad.

You should, um, adjust your story, your understanding of the economy to take account of that.

The thing that, uh, economists really focus on within this is not what's happened over the last twelve months, because eleven of those twelve months we already knew a lot about.

So the big news today is what happened in the latest month, and the latest month shows that inflation rose by zero point six percentage points in just one month.

If it continued at that rate, which hopefully it won't, then overall annual inflation would start to be very, very troubling.

But I think the more troubling thing here is there really is no sign of inflation abating or good news.

Let me pause on this.

If you wanna know what's happened to the cost of living, this measure, called headline inflation, measures the cost of living.

There's gonna be all sorts of talking heads on TV telling you about this price rose by a lot if they want you to believe it's worse news, or this other price didn't rise by very much.