March 10, 2021

The CPI rose 0.4% in February after having climbed 0.3% in January and 0.2% in both November and December.  It rose1.3% in 2020, and the year-over-year increase currently is 1.7%.

Food prices rose 0.1% in both January and February after having risen 0.3% in December.     In the past year food prices have risen 3.9%.

Energy prices jumped 3.9% in February after rising 3.5% in January and 2.6% in December.   The February increase was led by gasoline prices which climbed by 6.4% and accounted for one-half of the increase in the overall index.  The recent run-up in energy prices appears to be a reflection of both the global economy gathering momentum as well as some cutback in production by OPEC countries in an effort to push prices high.  Despite the recent increases, in the past year energy prices have risen only 2.3% because of the big drop in gas prices during the recession early last year.

The CPI excluding the volatile food and energy prices rose 0.1% in February after having been unchanged in both December and January.   In 2020 the so-called core CPI rose 1.6%.  The increase the 12-month period ending in February is 1.3%.  One reason why the CPI has risen so little in January and February is because airfares fell 3.2% in January and 5.1% in February as COVID cases  began to surge.  In the past year airfares have declined 25.6%.   The same thing is true for  hotel room rates.  They declined 2.2% in January, 2.7% in February and have fallen 13.3% in the past year.  They do not have a big weight in the CPI but if they had been unchanged the core CPI would have been 0.2% higher.

While inflation remains relatively well in check for the moment, there is no doubt in our mind that the inflation rate is on the rise primarily because of 26% growth in the money supply in the past year.  Typically, M-2 rises at about a 6.0% pace.  But when the Fed purchased $3.0 trillion of government securities back in the spring of last year money growth soared.  A 26% increase in a year  is unprecedented growth and is going to cause the inflation rate to climb in the months ahead.  But while rapid growth in the money supply presages a pickup in the inflation rate, it is less clear exactly when and by how much the inflation rate will rise.

But we are already seeing signs of inflation beginning to climb.  Home prices have jumped 10.4% in the past year.

Commodity prices are at their highest level in the past eight years which is lifting goods prices.

The dollar has been declining which means that the prices of imported goods will begin to climb.

The CPI rose just 1.3% in 2020 while the core rate rose1.6% .  We expect the CPI excluding food and energy is projected to increase 2.3% this year and then increase 3.0% in 2022.

Stephen Slifer


Charleston, SC