The latest consumer price index (CPI) numbers were released for July 2021.  The CPI rose 0.5% for the month.  The year-over-year remained at 5.4%.

The median CPI went up 0.3% for the month, while the year-over-year median CPI rose slightly to 2.3%.

If you add up the increases over the last 6 months (0.4, 0.6, 0.8, 0.6, 0.9, 0.5), you get 3.8 percent.  If you compound it, it is just slightly higher than 3.8.  So just based on the last six months, annualized price inflation is running close to 8 percent.

The CPI number came in line with estimates, so there was not a dramatic impact on the markets one way or another.  Some of the analysts are celebrating because it finally did come in at the estimate, whereas in months past the actual inflation rate was exceeding expectations.

Now they can say that the rate of inflation is coming down.  But here’s the problem.  Prices are still going up, even if the rate of increase itself came down slightly.  Prices still increased another half a percent over one month.  If you were spending $1,000 per week in June, then you were spending $1,005 in July for the same things.

However, your weekly spending on the same lifestyle isn’t going back to $1,000 per week.  And it isn’t staying at $1,005.  It will keep going higher, even if the rate of price inflation decreases some more.

This is the trick when people talk about inflation, particularly in the financial media.  Even if price inflation is “transitory”, it doesn’t mean prices are going back down to where they were.  They will just continue to increase, except at a slower pace.

Of course, I don’t believe that higher price inflation necessarily is transitory, unless the Fed is going to seriously cut back on its monetary inflation.

It’s not clear how the Fed is going to scale back.  Congress just passed a giant infrastructure bill, and Biden just proposed trillions of dollars more in spending on expanded “free” stuff.  This is on top of the trillion-dollar deficits that are already happening.  If Congress is going to continue to wildly run up the debt, then who is going to buy the debt if not the Fed?

Let’s add to the equation that the market mania (stocks, cryptocurrencies, real estate) is all propped up from easy money and artificially low interest rates.  If the Fed pulls away the easy money, it will all come down like a house of cards.

The only reason that the Fed will significantly tighten is to avoid runaway inflation.  For that reason, seeing higher price inflation may be good in the long run because it will force the Fed’s hand, which in turn may force Congress to tighten up a little bit.

Think of the economy as a sick person.  The easy money keeps pumping pain relievers to make it feel good.  But the problem is that you don’t recognize the illness.  The sick person needs to show symptoms in order to treat the illness.  The price inflation is the beginning of showing symptoms, which are needed as a signal.

Of course, the Fed could ignore the symptoms and just up the dose of the pain relievers.  But this cannot go on forever, even if it seems today like it can.  As Mises said, you eventually end up with a crack-up boom, which really is hyperinflation.

The everything bubble is eventually going to pop, and it is going to pop hard.  If price inflation doesn’t get too out of control in the coming months, then the bubble may still have room to get a little bigger.