Why Will the Consumer Price Index Continue to Rise Well into 2024?
The Consumer Price Index (CPI) is a key economic indicator that measures the average change over time in the prices paid by consumers for a market basket of consumer goods and services. Recent trends suggest that unless significant changes are made to the current formula or administration adopts new measures, the CPI will continue to rise well into 2024.
Administrative and Economic Constraints
Historically, the formula for calculating the CPI has remained relatively stable. Unless the current administration decides to alter this formula, the CPI is expected to keep rising. This unwavering trend is particularly relevant as we approach the next presidential election, where the incumbent administration may be hesitant to implement drastic measures that could risk their re-election.
Inflationary Pressures and Lack of Political Will
Lowering inflation is not without political cost. The current administration is unlikely to take controversial steps such as spending austerity or implementing unpopular tax increases to augment Federal Reserve interest rate hikes. Although increasing domestic oil production could help moderate inflation, such measures are unlikely to be implemented immediately due to political and economic constraints.
Monetary Policy and Brakes on Inflation
The Federal Reserve has taken steps to address inflation by raising the federal funds rate, which slows down economic growth and reduces spending. However, this approach is more akin to using brakes on a speeding car on a steep hill – it can slow the inflation down but not stop it completely. Other factors like geopolitical tensions, supply chain disruptions, and workforce shortages contribute to inflation, further compounding the problem.
Blame Game and Public Perception
As the inflation persists, blame games are inevitable. Blame may be directed at external factors such as OPEC production cuts, geopolitical conflicts, greedy businesses, and supply chain disruptions. Other factors like the trucker shortage and Congressional actions may also contribute to the problem. However, consumers and policymakers need to recognize that none of these factors alone can fully explain the inflation dynamics.
No Rational Coordinated Steps in Sight
Expectations for rational and coordinated steps to reverse inflation are likely to disappoint in the near future. Significant policy changes to reduce inflation would require bipartisan support, which is currently lacking. Instead, we will continue to rely on the Federal Reserve to manage inflation. However, the effectiveness of monetary policy alone in addressing inflation is limited. It is essential to recognize that both economic and political leadership is needed to effectively tackle inflation.
Prognosis for the Near Future
Given the current dynamics, it is highly unlikely that inflation will be flushed from our economy in the next year or two. Gas prices are expected to surpass $5 per gallon, and mortgage rates could reach 10 percent. These trends suggest that inflation will continue to be a significant concern for the economy and consumers.
Conclusion
The persistence of high inflation, as measured by the CPI, points to the need for a comprehensive and coordinated approach. Political will, economic policy, and public cooperation will be crucial in reversing the current inflationary pressure. While the Federal Reserve will play a vital role, real and lasting solutions require a multi-faceted approach that addresses both economic and political dimensions of the issue.