Inflation, Whither Thou Goest?

Everyone is concerned about where Inflation is going, and how the Fed is going to act because of where it is and what the latest data indicates has changed. This is all well and good, except what did they expect was going to happen? What was the forecast?

There is a forecast that the Fed produces, it produces several in fact; and other entities also make forecasts. But what good is a forecast to the public, if it isn’t used to help provide guidance on what is helping, hindering, or causing any changes that are occurring?

So, I thought it would be interesting to create my ‘forecast’ for inflation. It’s based on a simple concept and assumption: that as of today if things keep going as they have what would the inflation rates be each month until the end of the year. The graph shows this forecast and indicates that by the end of 2023 Inflation will be at 3.5%.

This implies that the Fed’s actions have been successful and will bring inflation under control. It also indicates that increasing the Fed’s rate will get to their target faster, but at what additional cost is unclear. The question is: would increasing the rate do more harm or good; and no one knows. If the Fed thinks they ought to raise the rate again, they should provide their forecast to compare to mine. Hidden in mine is something that I wonder if people understand about Inflation. They experience it, but do they know what it means? Just because Inflation is at an acceptable level, doesn’t mean things are back to normal. Besides, the whole function of Inflation is to force the system to realign to a new normal, to react to the reality of the conditions and situations that are imposed on us and that we impose upon ourselves. Inflation isn’t a bad thing if you use it to adapt to the circumstances, but it is an unforgiving thing to those who ignore it.

Evidence would suggest that we haven’t been paying sufficient attention to inflation, and we haven’t reacted as productively as we ought. Perhaps the Fed will save us from ourselves, even if we don’t like it.