The economic news in 2023 was almost miraculously good. Not only did America’s economy defy widespread predictions of recession, it also defied claims that only a significant rise in unemployment could bring inflation under control. Instead, we got a combination of strong growth, unemployment near a 50-year low and plunging inflation.
But last week, the Bureau of Labor Statistics reported that both the Consumer Price Index and the Producer Price Index rose 0.3 percent in January, more than most analysts expected. And the usual suspects — inflation perma-bears, political enemies of the Biden administration and economists who wrongly predicted that disinflation would require mass unemployment — jumped on the data as if it were a fumbled football.
So, are the good times over?
No. Everything we know suggests that those disappointing numbers were mostly a statistical blip rather than marking a significant worsening in inflation trends.
Before I explain how such blips can happen, let me tell you what indicators I was looking at after the inflation reports.
First, I was looking at financial markets, where instruments like inflation swaps and index bonds tell you what inflation rates investors putting real money on the line expect. The pricing on these instruments is still pointing to low inflation, around 2 percent or a bit more.
Second, I was waiting to see what happened in the Atlanta Federal Reserve’s survey of business inflation expectations, which asks businesses how much they expect costs to rise over the next year. If inflation were suddenly surging, you’d expect businesses to notice. But their inflation expectations rose to 2.3 percent in February from … 2.2 percent in January.
