Next month, don't be surprised to see high inflation statistics again
It's an adjustment process
One of the points I’ve tried to make about inflation is that last year, prices for many goods and services were falling, or at least stagnant. When prices started to pick up and as life slowly returns to normal, the inflation we see appears more dramatic. For example, California gas prices were at their lowest in July of 2020, when a gallon of regular cost less than $3.00 in California. Compared to today’s average of close to $4.50, that’s a 50% annual inflation rate.
Here is a plot of gas prices in California from 2010 to 2021:
Over the last 11 years, California gas prices have fluctuated between $2.50 and $4.50 per gallon, with barely any noticeable trend. Claims of recent inflation clearly need to be read with a longer time horizon.
For a slightly more complicated take on the same issue, here is an index of rental prices published by the Bureau of Labor Statistics for the Inland Empire, 2018 to September 2021. I overlaid a trendline based on pre-March 2020 growth in the series:
The black dashed line shows where rental prices were headed, while the green line shows actual rental prices. Notice the “dip” in the series over much of 2020 and early 2021. While rent prices are no doubt high out here, the pick-up we’ve seen over the last few months can be seen, over a longer time horizon, as a “return to trend”.
Next month, when the next regional inflation numbers come out, don’t be surprised to read more tales of “record-high inflation”. Just be sure to read them with a bit more context.