Rising prices for food and energy may not matter to economists, but they do to consumers.
Economists and regular people can never seem to agree about inflation. Looking at last week’s news that U.S. consumer prices rose an eye-popping 4.2% in April from a year ago, a central banker will say that the increase is a much more modest 3% once food and energy costs are stripped out. A normal person will say that doesn’t help very much when they’re trying to fill up the car on the way to the supermarket. The good news is that the Federal Reserve is deliberately insulated from day-to-day politics. That means Chair Jay Powell can stay the course with his “average inflation targeting” framework, while President Joe Biden and members of Congress can move to address the price issues that are most concerning to regular people: those everyday items that are purchased frequently even if they don’t necessarily add up to a huge share of overall consumer spending. It’s a healthy division of labor. Both kinds of inflation matter to different people and in different ways, and the central bank and elected government can complement each other’s work in helping Americans climb out of the pandemic economy. Wisdom stems from recognizing how fundamentally odd the economists’ concept of inflation is. The idea is to discount price movements in the food and energy sectors because they are prone to violent price swings, but also because these swings are often dominated by “real” rather than monetary factors. Chicken prices are up lately, for example, not because of money-printing but because Tyson Foods apparently made a bad bet on roosters that don’t perform. The Fed rightly concentrates on slower-moving changes in big sectors of the economy such as housing, health care and durable goods.
