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Soon Jews the world over will celebrate the Passover holiday by asking at the ceremonial dinner (seder) “Why is this night different from all other nights?” (The answer is easily Google-able.)

Today, those the world over who follow the economy should ask “Why is this morning’s U.S. consumer inflation report different from all other recent U.S. inflation reports?”

The answer? Because this morning’s report (which takes the story through February) won’t be the biggest development looked at by the Federal Reserve in its upcoming meeting when it decides where it will set the interest rates it controls.

Instead, the biggest development it considers will be the turmoil that’s been breaking out these last few days in the U.S. banking system, whose proximate cause has been the blazing pace with which the Fed has been raising the federal funds rate over the past year.

Not that the new figures for the Consumer Price Index (CPI) will be ignored. In fact, they were probably unspectacular enough (either in a good or bad way), to convince the central bank to either slow down the pace of rate hikes or to pause them altogether, for fear of igniting a devastating financial chaos. But were they really so so-so? Not the way I see it.

Indeed, the data made clear that U.S. prices remain way too high, and are rising way too fast, to please any reasonable person. And that’s true either when it comes to the headline inflation results, or to their “core” counterparts – which strip out food and energy prices supposedly because they’re volatile for reasons having almost nothing to do with the economy’s underlying vulnerability to inflation.

The monthly February headline figure came in at 0.37 percent – below the 0.52 percent recorded in February (and the worst sequential result since last June’s 1.19 percent), but still bad enough to push prices up by nearly 4.50 percent at an annual rate if it continues for a year. And price increases that strong would be more than twice the Fed’s yearly target of two percent – creating a situation that no consumers will enjoy.

Speaking of annual headline CPI, its actual rate as of February was 5.98 percent – a good deal lower January’s 6.35 percent and the best such figure since September, 2021’s 5.38 percent.

But as known by RealityChek regulars, here’s where some baseline analysis is needed. That is, it’s crucial to see whether these annual figures are following those for the previous year that were unusually low or unusually high. If the former, then a yearly inflation rate that may look lofty at first glance might just represent one-time catch up – a reversion to a long-term average from a weak anomalous read.

In fact, in my view (and that of the Fed and the Biden administration), it was catch up that generated the rapid price hikes of the early part of this current high inflation period. The main reason was a rebound from price stagnation attributable mainly to the arrival of the CCP Virus and all the havoc it wreaked on the economy generally and especially on the service sector that makes up most of it by far. So I agreed with then conventional wisdom that at that point, worrisome inflation was “transitory.” (See, e.g., here.)

After early 2021, however, circumstances changed dramatically. Of course the Russian invasion of Ukraine last February drove up gasoline prices – though they’d been rising strongly since the recovery from the devastating first coronavirus-induced economic slump and took another big leg up in late 2020. (See this chart.)

More important was the Biden administration’s continuation of emergency-type stimulus spending well after the pandemic emergency had peaked and a strong economic recovery was underway. The American Rescue Plan Act and other boosts in government spending ensured that consumers at all income levels would long be abnormally cash- and income-rich, and that their resulting spending would give businesses generally a new jolt of pricing power.

And for many months, the changes in the baselines for annual headline and core inflation have strongly supported that case that inflation has become more entrenched.

In this vein, the allegedly encouraging annual 5.98 percent inflation rate for February shouldn’t be seen in isolation. What also matters is that it followed a 2021-22 baseline figure of a scorching 7.95 percent. That’s a clear sign of business’ continued confidence in its pricing power. The baseline figure for that September, 2021 5.38 percent inflation rate was just 1.63 percent – well below the Fed target and a number that points to an economy that was still being held back largely because of a seasonal CCP Virus rebound.

Core CPI paints a bleaker picture even without examining the baseline effect. On a monthly basis, it rose for the third straight time, and the new figure of 0.45 percent was the highest since last September’s 0.57 percent.

As for the annual increase, that registered 5.53 percent. That was a tad lower than January’s 5.55 percent and the best such result since December, 2021’s 5.52 percent. But the baseline for the new February figure is 6.43 percent – considerably higher than the 6.43 percent for Januay. So that’s a powerful argument for a worsening, not improving, core CPI performance. And the case seems to be clinched that the baseline figure for that December, 2021 core inflation rate was a feeble 1.63 percent – well below the Fed headline CPI target.

Even before the February CPI report, I believed that inflation would keep heating up because most consumers still have plenty of cash (and therefore, don’t forget, credit), and because a combination of slowing growth (which, to be fair, we haven’t seen yet), and an approaching election cycle would keep politicians tempted to keep spending levels high in order to prop up the economy and keep voters happy. Moreover, I’ve never bought the argument that the Fed would keep fighting inflation vigorously enough to tighten monetary policy enough to cut growth rates dramatically – much less risk a recession – going into the high political season.

Now with banking system troubles added to the mix, the idea that continued strong interest rate hikes seems completely fanciful – along with any realistic hopes that inflation will soon fall back to acceptable levels.