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David Stockmans Contra Corner
Requiem For 2.00% Inflation Targeting

Requiem For 2.00% Inflation Targeting

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david stockman
Jan 12, 2024
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David Stockmans Contra Corner
Requiem For 2.00% Inflation Targeting
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Today’s CPI report brought a lot more inflation noise, but also a cogent reminder that the Fed’s effort to fine-tune the nation’s $26 trillion GDP and fiddle its inflation and unemployment “goals” to the second decimal place is truly a Mission Impossible.

For instance, awhile back when the headline CPI was running red hot at nearly 9% Y/Y owing to price surges in energy and food, in part owing to Washington’s idiotic proxy war and sanctions against Russia, Jay Powell et.al. started touting the “super-core” inflation index, which removed goods entirely and also shelter.

That is to say, this newly christened “correct” measure of inflation excluded 76.2% of the item-weights in the full CPI! They could very easily get to 0.0% inflation on that basis by eliminating, well, 100% of the items.

So the supercore inflation index was humbug from the very beginning, but when the headline CPI peaked at 8.9% Y/Y in June 2022, the supercore conveniently clocked in at “just” 6.7%, supposedly meaning that all that “transitory” inflation wasn’t quite so bad after all.

Of course, try 6.7% inflation for 10 years running and you lose 51% of your money. But the Fed had other purposes in mind. It wished to minimize the inflation rate in the here and now, and hope for the best down the road.

Well, we are now down the road by about 18 months, and it’s not working out so well. The commodity-impacted headline CPI has been dropping steadily, and posted at just 3.4% in December. But, alas, the supercore, which has been turning upward for the past four months, posted at 4.1% on a Y/Y basis in December.

So what-oh-what is a central banker to do when he can’t confect a statistical sleight-of-hand cure to the inflation surge that his money-printing escapades have generated?

Perhaps, he should question his entire policy model!

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