First, the good news. March-June 2022 saw particularly high month-over-month price growth, and those months will roll out of the annual average over the next four months. So even if the month-over-month figure matches the February 2023 figure that was released on Monday – more on this later – in each of the next four months, we could expect the annual inflation to fall to approximately 3.81%.
Now, the bad news. Four of the last six months of 2022 saw negative month-over-month price growth and the total price increase over those six months was barely above zero. These months will roll out of the average during the second half of 2023. So again, if we carry the February 2023 figure forward through December 2023, we could expect the annual inflation to rebound to approximately 6.04%.
See the following table. The first column is, obviously enough, month and year. The second is month-over-month price growth according to BLS. This figure does not take seasonal factors into account, so it doesn’t exactly match the adjusted month-over-month figures, but the annual figures work out because seasonality will even out across an entire year. The third column is the annual inflation implied by twelve consecutive months at that month’s monthly figure; i.e., twelve consecutive months of 0.84% growth would produce annual inflation of 10.58%. The fourth column is annual inflation over the twelve months ending with the identified month, i.e., the twelve months from February 2021 through January 2022 had an annual inflation of 7.48%.
|
Jan-22
|
0.84
|
10.58
|
7.48
|
|
Feb-22
|
0.91
|
11.53
|
7.87
|
|
Mar-22
|
1.34
|
17.25
|
8.54
|
|
Apr-22
|
0.56
|
6.91
|
8.26
|
|
May-22
|
1.10
|
14.06
|
8.58
|
|
Jun-22
|
1.37
|
17.79
|
9.06
|
|
Jul-22
|
-0.01
|
-0.14
|
8.52
|
|
Aug-22
|
-0.04
|
-0.42
|
8.26
|
|
Sep-22
|
0.22
|
2.61
|
8.20
|
|
Oct-22
|
0.41
|
4.98
|
7.75
|
|
Nov-22
|
-0.10
|
-1.21
|
7.11
|
|
Dec-22
|
-0.31
|
-3.62
|
6.45
|
|
Jan-23
|
0.80
|
10.03
|
6.41
|
|
Feb-23
|
0.56
|
6.91
|
6.04
|
So, twelve more months of 0.56% month-over-month growth [the February 2023 figure] will lead to annual inflation of 3.81% in June 2023, 7.16% in December 2023, and 6.91% in February 2024. Not great.
Now, assume twelve months of zero month-over-month growth, which would be generally consistent with July-December 2022. We would then expect annual inflation of 1.53% in June, 1.36% in December, and 0.00% in February. This scenario is probably unrealistic.
Finally, twelve months of month-over-month growth of 0.17% - which would produce the Fed’s annual target of 2.00% annual inflation – would yield annual inflation of 2.20% in June, 3.05% in December, and 2.00% in February.
None of this is intended to support either political party’s view of the problem and the action necessary to bring inflation down to an acceptable level, or even what an acceptable level is. It is simply an explanation of what we can expect given the data that will roll out of the average over the next year.
Disclaimer: I am not an economist by training, and I invite any knowledgeable person to check my assumptions and calculations.
https://www.bls.gov/data/inflation_calculator.htm
