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    Rising Inflation Creates Challenges for Measuring the Economy


    The US government released its monthly report on consumer prices on Tuesday, showing that prices rose in January at the fastest rate in three months.[0] This evidence of rising inflation is likely to pressure the Federal Reserve to raise interest rates even higher and keep them there for a longer period of time than markets expect.[1]

    The Federal Reserve believes that the source of inflation is the labor market, which they describe as “too hot”.[2] More specifically, the natural rate of unemployment is estimated to have moved up from 4% to somewhere between 5% and 6%.[2] This is a problem because the unemployment rate dropped to 3.4% in January, the lowest in 53 years.[2]

    The inflation report also showed that grocery prices continue to rise, increasing by 0.4% in January and 11.3% since this time last year – nearly double the overall inflation rate.[3] This is making homeownership and rental prices increasingly unaffordable for many.[4]

    The government's adjusted data for 2022 shows that the month-on-month inflation trend was revised up by 0.1 percentage points for both November and October.[5] This data is based on consumer spending patterns in 2021 and is intended to give a more timely and relevant reflection of actual spending patterns.[5]

    Meanwhile, economists at the Federal Reserve and other institutions such as William Blair analyst Richard de Chazal, Diane Swonk of KPMG, and Vanguard's Andrew Patterson are pointing out that the rapid pace of the economy is making it difficult to measure current economic conditions and predict where it is headed.[6] They are hopeful that the adjusted data will help gauge economic activity during what has been an unpredictable time.[5] As Swonk noted, the US statistical agencies are working hard to measure and seasonally adjust the data accurately to reflect what were once considered normal seasonal variations.[6]

    0. “Analysis | This Inflation Report Will Lead to Bad Fed Decisions” The Washington Post, 14 Feb. 2023,

    1. “US CPI increases more quickly than expected in January” ShareCast, 14 Feb. 2023,–12332584.html

    2. “The Federal Reserve Is Ignoring Its Own Inflation Research” Bloomberg, 14 Feb. 2023,

    3. “Is Inflation Sneakily Starting To Rise Again?” Reason, 14 Feb. 2023,

    4. “Housing singled out as largest contributor to inflation: Economists” Inman, 14 Feb. 2023,

    5. “Bad news: Consumer prices actually climbed in December – Local News 8”, 10 Feb. 2023,

    6. “December consumer prices didn't actually fall | Business |” WJRT, 10 Feb. 2023,

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