It’s important to understand what inflation measures. This may sound simple, but it is quite complicated.

We examine the price of a good or service today compared to last year. When there is a spike in pricing, such as the supply shortage generated by the pandemic and high demand, the comparison to the previous year’s costs becomes dramatic.

As prices settle and the supply line evens out, prices stabilize. Consumers become a bit more discerning, and retailers adjust.

A better gauge of inflation might be a six-month perspective, which Fed Chair Powell prefers. Personal Consumption Expenditures (PCE) is currently 1.85% below its 2% target.

PCE measures the prices consumers pay for goods and services.