The markets were gaga today with an inflation report of 7.7% (annual rate) down from 8.2% the prior month (40-year high) and a monthly rate of 0.4%.
Those are the numbers, but folks seem unable to understand how they apply. So, please allow me to provide an example.
1. Suppose a year ago, a dozen eggs cost $2.00. With me?
2. Suppose a year goes by and the cost of a dozen eggs rises to $4.00. That is a price increase of $2.00.
In fact, that is the truth as noted in this Fortune article discussing food prices:
3. Suppose in the next year, the rate of inflation cools to, say, 4%. Great, right?
Yes, it is an improvement. Right?
4. How much does a dozen eggs cost now?
So, our eggs originally cost $2.00/dozen when the inflation started, then our eggs went to $4.00/dozen and now inflation is only 4%. Those are the facts in our example.
5. A dozen eggs costs $4.00 x 1.04 (1 + the rate of inflation) = $4.16/dozen.
The prior increases in the cost of eggs are never going away, dear reader. You knew that, right?
Bottom line it, Big Red Car
When the US finally tames inflation, prices are never returning to the base level when this shit storm started, y’all, and you knew that right?
Inflation is with us forever.
But, hey, what the Hell do I really know anyway? I’m just a Big Red Car.