Taps Coogan – August 23rd, 2021

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Since the first time yours truly heard the Fed argue that ‘Base Effects’ were the driver of rising inflation, we’ve been trying to point out how intellectually dishonest that argument was.

Simply put, no major measure of inflation turned negative year-over-year in 2020. Not CPI, Core CPI, Sticky CPI, PCE, Core PCE, or trimmed mean PCE. None.

Whatever slowdown in inflation that did briefly occur in 2020, it was not nearly as dramatic as the Fed has led on and has already been made up for, and then some, as the following chart from The Daily Shot highlights.

The base effect stopped explaining the rise in inflation sometime around February of this year. Since then, inflation is better explained by continued supply chain disruptions and way too much monetary and fiscal stimulus working its way through the system. While the Fed will never admit that, and remains on QE auto-pilot despite all incoming data, this is already a major monetary policy failure that has led to a bigger contraction in real median wages than the Global Financial Crisis. The purchasing power that Americans are rapidly losing will never be regained. The best that can be hoped for is that the Fed will eventually get around to slowing the pace of further deteriorations in dollar purchasing power and don’t hold your breadth about that either. One way or another, they’re going to have to monetize our new perpetual multi-trillion dollar deficits, inflation or not.

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