Is the current rate of "core inflation" transitory? Maybe. But not including food and energy in inflation calculations is misguided. Food and energy are excluded from core inflation because they are volatile. But excluding food and energy due to volatility only makes sense if the prices are bouncing up and down. Both food and energy costs are on a long term upward trend. So even if Jerome Powell hits his target of two percent core inflation, the cost of living coming out of consumers pockets is going to be greater than two percent.
It seems ridiculous that after today's Consumer Price Index (CPI) report (9/14/2021), so much attention was given to that fact the Core CPI was only up 0.1% and below consensus expectations. Headline CPI rose 0.3% month-over-month, boosted by a 2.0% surge in energy prices and a 0.4% rise in food. While the headline CPI percentage year-over-year edged down to 5.3% from 5.4% it's hard to see how anyone can continue to claim inflation is transitory.
Climate change (or more accurately "global weather weirdness") is going to continue to play havoc with food production. Food shortages are a real threat in the near term, and highly likely in the future. As decribed in this article, "A world of hurt: 2021 climate disasters raise alarm over food security, human-driven climate change is fueling weather extremes — from record drought to massive floods — that are hammering key agricultural regions around the world. And has Jerome Powell been grocery store shopping lately? Grocery product prices are increasing and package sizes are shrinking. (Google shows 189,000 results for "shrinkflation")
Energy costs are also going to continue rising. The combination of reduced exploration spending and environmental regulations are curtailing oil and gas production much faster than clean energy is able to serve as a replacement. While oil is up to over $70 a barrel, natural gas prices are spiking even faster, particularly in Europe. According to the Wall Street Journal, "at their peak, U.K. electricity prices had more than doubled in September and were almost seven times as high as at the same point in 2020. Power markets also jumped in France, the Netherlands and Germany."
And as far as consumers perception of inflation goes: 1) prices at the grocery store, 2) the cost of filling a tank with gasoline, and 3) heating bills, are all extremely high visibility items. Consumers may not notice a 2% increase in core inflation, but they sure as hell notice increases in food and energy cost.
Thus, anyone that pretends that inflation is transitory based on "core inflation" is either wrong or knowingly attempting to put a spin the data. Keep your focus on the rise in headline inflation.
