The Great Phony Disinflation Enters Its Finale

August 22, 2023

by Brendan Brown Mises.org

“La commedia è finita!” summarizes where the United States and Europe now stand in the Great Phony Postpandemic Disinflation. Why phony? Reported consumer price index (CPI) inflation has been falling in the US and Europe; but this has little to do with the advertised monetary tightening by the Federal Reserve, European Central Bank (ECB), and Bank of England.

Rather, the decline in reported CPI inflation is consistent with a natural downward rhythm of prices, reflecting fading pandemic restraints on supply. In a good money system, the essence of which is the absence of monetary inflation, average consumer prices (as represented by the CPI) would have long ago returned to their prepandemic levels.