Price Inflation Slowed to 3 Percent. That’s Still Far Too High.

July 25, 2023

by Daniel Lacalle Mises.org

The recent University of Michigan survey’s reading of one-year price inflation expectations rose to 3.4 percent in July from 3.3 percent in June. The five-year outlook also increased to 3.1 percent from 3.0 percent in the previous month.

There is a mainstream narrative that is growing all over the financial media: We must accept three percent annual price inflation as a success at combating rising prices. This is enough to pivot and return to monetary easing. It is not.

Three percent annual price inflation for ten years is a loss of purchasing power of the currency of 34 percent after what is already a disastrous inflationary environment.

There is nothing positive about rising long-term price inflation expectations. It is not just the confirmation of a terrible destruction of real wages and deposit savings, but a huge incentive to maintaining the least efficient and unproductive parts of the economy.