IT'S A DEFLATIONARY EPOCH:

Looking at the data, the biggest component of that headline excess over core inflation is from energy prices. It isn't about food, as food inflation has actually come down this year. But when you look at the energy CPI, it is up about 25 percent, year-on-year, and that lines up with increases in oil prices. The headline inflation story is about the oil market, not about general price inflation, and oil prices drop as well as rise. The headline numbers are not indicating sustained inflation.

But the core numbers still might be, as they are indeed up, even if they show signs of peaking. But here as well there are a couple of components that are pulling the core numbers higher. Vehicles are a big one, with the price of new cars up by more than 5 percent and the price of used cars up by more than 40 percent. Here, too, you can make a good argument that inflation is about a couple of factors, rather than being more broadly based.

Even when we look more closely at other components, the outlook is better than the headlines would suggest. Service inflation, for example, is up--but let's deconstruct that. Shelter inflation, for example, is still at less than 3 percent. Medical care service inflation is down to just over 1 percent. The excess inflation comes, once again, from transportation services, which are up by more than 10 percent but have recently ticked down.

So, the inflation story is more about isolated components, rather than general increases in prices, and even those components are showing signs of peaking. And this is even before we consider the one- and two-year differential, where we see most of the price increases this year are just catching up on the lack of price increases in 2020. As we dig into the numbers, inflation is above where it has been but is showing signs of rolling over and returning to more comfortable levels.

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