It seems inescapable to me that much of our continuing inflation difficulties result from Vladimir Putin’s evil assault on Ukraine. At the same time, I believe that much of the improvement in the Consumer Price Index (CPI) is the result of the West’s amazing response to the loss of Russian oil. Free nations are far more adaptable in crisis than authoritarian ones such as Russia, China, or Turkey. We are seeing the inherent strength of free people at work.
Below I have reproduced the full components of the CPI. Energy prices have fallen dramatically from last year, while food continues to be elevated, although meats, poultry, fish, and eggs have eased by -0.2%.
All items less food and energy continue to rise at an unacceptable 4.7%, which is why I believe that investors are still underestimating the probability that rates will stay higher for longer.
12-month percentage change, Consumer Price Index, selected categories, July 2023, not seasonally adjusted