Has inflation finally peaked?

Published over 1 year ago • 4 min read

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Jerome Powell isn’t satisfied.

In his speech in Jackson Hole Friday before last, the Fed chair said that it “will take some time” to tame inflation, and that “While the latest economic data have been mixed, in my view our economy continues to show strong underlying momentum.” In other words, the Fed has more work to do.

The speech sent markets tumbling. It wasn’t particularly new or surprising, but it came on the heels of President Biden trumpeting “zero percent” inflation for the prior month. In July, the Consumer Price Index (CPI) didn’t budge: Prices were the same as in June. That raised hopes that inflation had finally peaked.

Powell’s message was that a single data point was not enough to draw that conclusion. “While the lower inflation readings for July are welcome, a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down,” he said.

Being the Fed chair is weird. If Powell says inflation has peaked, he makes it less likely to be true—markets will interpret that to mean interest rates don’t have to go up as much, so economic activity will increase and inflation will become more likely.

For the rest of us, though, it’s worth asking: Has inflation peaked? With gas prices easing, the labor market cooling ever so slightly, and the Fed committed to raising interest rates, it’s very possible that it has.


  • Inflation refers to a rise in the overall level of prices across the economy. It’s caused by the interplay of supply, demand, and expectations. If a war takes oil fields offline, gas prices rise—an increase in prices due to supply shortages. If policymakers pass a massive stimulus package, consumers might bid up prices on goods faster than suppliers can produce more—an increase in prices due to excess demand. And when people get used to inflation they come to expect more of it, creating a self-fulfilling prophecy: Workers expect future inflation so they ask for higher wages, etc. That’s an increase in inflation due to expectations.
  • In early 2020, Covid-19 forced factories and stores around the world to close. Prices in the US fell in March and April, as the economy hit the pause button. Policymakers pumped an unprecedented $5 trillion into the economy to support households and businesses. By December, vaccines were rolling out.
  • By spring of 2021, US inflation was rising faster than at any time in the past decade. In June 2022, the CPI was 9.1% higher than the year prior.
  • As prices rose, a faction of experts dubbed “Team Transitory” argued that inflation would subside once the pandemic eased, lockdowns ended, and supply chains were able to return to normal. They emphasized price increases in specific pandemic-related sectors like rental cars. Their critics argued prices wouldn’t go down on their own, emphasizing excess demand from stimulus and more general price increases across the economy.
  • In late February, Russia invaded Ukraine, pushing prices for food and energy higher. In March, the Fed raised its target interest rate by a quarter of a point. It’s announced three more rate increases since then; its target rate is now 2.25 percentage points higher than it was to begin the year and it’s expected to keep hiking.
  • But gas prices are now lower than they were the week before Russia invaded Ukraine. And in August, US unemployment rose slightly, to 3.7%, a possible signal that the red-hot labor market is beginning to cool—which could ease inflation.



Has inflation peaked?

Joe Weisenthal, Bloomberg, 8/12/22:

“I think there’s a pretty good chance that on a year-over-year basis, we’ve seen the worst of the inflation. We have seen the significant cooling of commodities. We have seen a slowdown in the housing market. We have seen sustained improvement on supply chains. If you look at various surveys of companies, when they talk about lag times for their own suppliers, they’re improving. So I think there’s reason to think that we’ve seen the worst of it.”

Nate DiCamillo, Quartz, 9/2/22:

“Inflation, meanwhile, is expected to be flat or possibly negative in August, increasing the Fed’s chances for cementing labor market gains while bringing down prices.”

Claudia Salm, 9/1/22:

“ The only question now is how severe a [European] recession it will be… The United States… should be able to weather the storm in Europe. Their hardship will sharply lower their demand and help bring our inflation down.”

Joe Seydl, JP Morgan, 5/26/22:

“We think inflation is now peaking, and we expect it to decelerate through the rest of this year.”

Matt Klein, 8/12/22:

“Even though we should be encouraged by the latest numbers, declaring victory based on the CPI (and even the PPI) would be premature. Special factors may suppress the total inflation rate for a while, but sooner or later that process will stop and we will be left with whatever remains. Honest observers understood that the 11% annualized CPI growth rate in the first half of 2022 was unrepresentative of the underlying inflationary pressures affecting the U.S. economy—and the same holds for the 0% monthly change reported for July.”


How likely is it that the Consumer Price Index (CPI) will have increased in August from July levels (month over month)?

Here’s what prediction markets think:

What do you think?

Click the choice that best represents your forecast

~10% chance

~30% chance

~50% chance

~70% chance

~90% chance


  • This question will resolve based on BLS data for the August CPI, seasonally adjusted change from the previous month
  • That data is expected Sept. 13
  • Make your forecast by midnight Monday 9/5 to have it counted


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