Do Central Banks Still Care About Inflation?

Structural consumer price increases may be abating. We’ll soon see whether monetary authorities will adapt their mandates.

- Simon Brown

US inflation for April came in worse than expected with April’s consumer price index (CPI inflation) rising 4.2% and core CPI gaining 3%, the highest since 2009. The US Federal Reserve (Fed) targets inflation of 2% and even though they focus on core CPI, the number overshot this target.

Now, there are two issues, the first being the base effect. April 2020 saw a hard lockdown and inflation plummeted. So, a high April 2021 number was expected. Secondly, stimulus cheques have in part been spent coupled with pent-up demand as the US vaccinates its citizens. This is best illustrated by the data point that used cars and trucks – it saw a 10% jump in prices year-on-year and contributed a third to the month-on-month increase in core inflation.

Now, we can debate the second point but to my mind there are bigger issues. I wrote recently about how I feel that high structural inflation such as we saw in the 1970s through to the 1990s is over and unlikely to be repeated.