The Fed has published its latest semi-annual monetary policy report ahead of Jerome Powell's testimony to Congress next week, which is full of 75 pages of warnings and cautions about the economy - which nobody will read - and instead everyone will hone in on the report's "inflation" section summary. It is here, buried deep in the summary paragraph that we find one of the biggest oxymorons to come out of the Fed yet:
Inflation: Consumer price inflation, as measured by the 12-month change in the PCE price index, moved up from 1.2 percent at the end of last year to 3.9 percent in May. The 12-month measure of inflation that excludes food and energy items (so-called core inflation) was 3.4 percent in May, up from 1.4 percent at the end of last year. Some of the strength in recent 12-month inflation readings reflects the comparison of current prices with prices that sank at the onset of the pandemic as households curtailed spending—a transitory result of “base effects.”
And the punchline:
More lasting but likely still temporary upward pressure on inflation has come from prices for goods experiencing supply chain bottlenecks, such as motor vehicles and appliances. In addition, prices for some services, such as airfares and lodging, have moved up sharply in recent months toward more normal levels as demand has recovered. Both survey-based and market-based measures of longer-term inflation expectations have risen since the end of last year, largely reversing the downward drift in those measures in recent years, and are in a range that is broadly consistent with the FOMC’s longer-run inflation objective.
Here the Fed is referring to this chart of exploding container rates, which today just hit a new record high...
... as well as the following Goldman chart showing soaring prices of "supply-constrained" goods, which even Goldman said will takes year to revert back to pre-covid baselines (if ever)...
... but what the Fed is really saying with "More lasting but likely still temporary" is the effective equivalent of "permanent but still transitory", because for most people, more lasting - which means years - is a period of time when all their excess disposable income, if any, will go to covering the not so temporary higher prices.
Translated, the morons in the Fed have finally read Milton Friedman whose legendary line...
“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
... always proves correct.
For those who have a lot of spare time, the Fed's report is below (pdf link)