A combination of higher prices for energy, food, apparel and rental property has driven up official government inflation statistics. After a sharp rise in the summer months, CPI inflation is up 3.8% in the past year, the highest since 2008, while so-called core CPI, which excludes food and energy, is up 2%.
"Inflation appeared to have moderated since earlier in the year as prices of energy and some commodities declined from their peaks," the FOMC declared in the minutes of the Fed's Sept. 20-21 meeting, released this week. "But inflation had not yet come down as much as participants had expected earlier this year."
That inflation has surprised the Fed on the upside is notable because, as just about everyone knows, the official inflation statics understate real-world inflation because of hedonic adjustments and other government sleight of hand.
The good news is inflation may have already seen its "cyclical peak" and is "likely to tail off" in the months ahead, according to David Levy, chairman of the Jerome Levy Forecasting Center.
Indeed, the recent decline in energy prices should show up in the September PPI and CPI data out next week.
The bad news is Levy believes inflation has peaked because he is "very concerned" about the state of the global economy, despite the recent batch of better-than-expected data, including Friday's retail sales report.
In addition, and more fundamentally, Levy notes wage inflation has been M.I.A. throughout the so-called recovery. With millions of Americans un- or under-employed, workers have little-to-no leverage to ask for pay increases, much less get them.
In sum, "the disinflationary pressures from weak wage growth and high unemployment will put increased downward pressure on the core CPI in the months ahead," according to Levy.