by William J. Luther
The American Institute for Economic Research
As anticipated, the latest data show that prices continued to rise at an incredible pace in December. The Personal Consumption Expenditures Price Index (PCEPI), which is the Federal Reserve’s preferred measure of inflation, grew at a continuously compounding annual rate of 5.6 percent from December 2020 to December 2021. Inflation has averaged 3.5 percent since January 2020, just prior to the pandemic.
The Federal Reserve (Fed) is officially committed to a 2 percent average inflation target, as explained in its Statement on Longer-Run Goals and Monetary Policy Strategy. But supply constraints and a surge in nominal spending have pushed prices well above target. In December, the price level was 3 percentage points higher than it would have been had prices merely grown at 2 percent since January 2020.