Four Month Inflation Rate Hits 40 Year High

We're told that the United States is currently experiencing 12 month inflation rates like we have not seen in 13 years, and that much of the reason is the price recovery from the lows that occurred with the imposition of the economic shutdowns in the spring of 2020.

Using the same Consumer Price Index numbers but a different methodology, we will show in this analysis that the United States is currently experiencing the highest sustained rate of inflation in 40 years - not 13 years.

Four strong inflationary months in a row, March through June of 2021, have produced an annualized rate of inflation of 9.18%. This is the highest four month rate the United States has seen in 40 years. We have to go back to October of 1981 - in the midst of some of the highest rates of inflation in U.S. history - to get four months in a row of inflation that are as high as what we have just experienced.

The four months in question are not the result of a recovery from pandemic lows. Yes, the rolling 12 month measures that have been drawing attention have indeed been from a depressed base, the three months of price decreases in the spring of 2020 as the economy shut down, and this has led to a widespread "spin" that this is all just a recovery from those lows.

However, when we use a rolling four month measure, our starting point becomes the record high prices of February of 2021, long after the pandemic low of May of 2020, or the full price recovery that had occurred by August of 2020. The Consumer Price Index had already set seven consecutive all-time monthly highs, even before this powerful and sustained surge of inflation began.

This analysis is part of a series of related analyses, which support a book that is in the process of being written. Some key chapters from the book and an overview of the series are linked here.

A Powerful But Uncommon Inflationary Cluster

From August of 2020 through February of 2021, at a time when the Consumer Price Index (CPI-U, seasonably-adjusted) had already recovered from the pandemic lows, the monthly cost of maintaining a standard of living for an average urban consumer had been increasing in a range of about 0.12% to 0.35%. When annualized, these monthly measures are the equivalent of about 1.4% to 4.3% annual rates of inflation. These were somewhat higher than most of what had been seen through the 2010s, but not a great deal higher.

Then in March of 2021, the average price of goods and services in the U.S. jumped by 0.62%, which is an annualized inflation rate of 7.7%. This was the single largest monthly move in the CPI-U that we had seen since June of 2009. However, the June of 2009 jump was followed by a slight decrease in reported prices in July of 2009, so sharp one month moves don't necessarily mean all that much by themselves.

In April of 2021, the seasonally-adjusted CPI jumped by a larger 0.77%, which is an annualized 9.6% rate of inflation. In May, prices jumped another 0.64%, which is about an 8% annualized rate of inflation. Instead of a single one month surge, the highest one month rates of inflation since 2009 had now been repeated for three months in a row.

Then, instead of falling, in June of 2021 the reported rate of inflation rose still faster, to a 0.90% monthly rate, which is an annualized 11.4% rate of inflation, and the highest seen since June of 2008.

We have seen four consecutive strong one month increases in consumer prices, with every one of them being higher than any single month of inflation seen in over eleven years. How unusual is it to see four one month increases clustered together like that?

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Disclosure: This analysis contains the ideas and opinions of the author. It is a ...

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