Another case of negative efficacy

“We currently have two distinct sources of inflation, with the first being the previous supply chain-driven inflation, and the second being inflation from the Ukrainian War and related sanctions. With the release of the March Consumer Price Index, for the first time we saw combined effects of both sources of inflation for a full month.

The March 2022 Consumer Price Index was released on April 12, 2022, and it is being reported as an 8.5% rate of inflation when compared to the March 2021 CPI number. This 8.5% inflation figure is based on 11 months without the Ukrainian War, and one 1 full month with the War.

The CPI on a seasonably-adjusted basis rose by 1.2% in March, a 15.4% annual rate of inflation. If we don’t seasonably adjust and compare February and March price levels, the monthly rate of inflation is 1.3%, a 16.8% annual rate of inflation.

Three month Treasury yields rose to an average of 0.41% in March. However, inflation rose from the previous rolling three month average of 7.84% to 15.4%. So we now have a negative real interest rate of almost exactly 15%.

The Taylor Rule formula says that the best way for the Fed to bring down a persistent 15.4% rate of inflation is to bring the Fed Funds rate up to 24.1%. Interest rates moving to 24% may sound like a bizarrely improbable scenario. The alternative to 24% interest rates is to let 15% inflation continue.

The problem is that inflation is an exponential series. We haven’t seen exponential compounding of high rates in many years.”

http://danielamerman.com/va/ccc/J2CPIfifteen.html “A 15.4% Annualized Rate Of Inflation”


german_inflation_4

Children stand next to a tower of 100,000 marks, equal in value to one US dollar. 1923, from Rare Historical Photos. I’ll point out that an American in 1923 could go to their bank and redeem one US dollar for one troy ounce of gold.

Didn’t agree with the author’s sources of inflation analysis. But not going to take my time and effort to lay out alternatives because https://xkcd.com/386/

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