Core inflation has gone rotten

THIS has been a big week for inflation numbers. We got two major reports from the Bureau of Labor Statistics, on consumer prices and producer prices. We also got reports on consumer inflation expectations and on business inflation expectations – which I’ve become increasingly interested in. Across these, the news ranged from decent to great. We still don’t know for sure if we’ll manage to get inflation under control without a recession, but the odds are looking better.

But did you get that message clearly from news reports? My guess is that you didn’t, not because the media got the facts wrong but because much of the coverage – certainly the coverage I saw – was unduly shaped by one number. That, of course, is “core inflation”, or annual inflation excluding food and energy, a measure that was useful in the past but has become misleading in the post-Covid era.

At any rate, many of the reports I saw said something like this – “Headline inflation was down in May, but core inflation remained elevated” – conveying the impression that we may not be making much progress.