To an economist looking at the government CPI report that came out Tuesday, it is clear that inflation is receding. Over the past 12 months, the overall CPI is up 3.2%, far below the peak annual rate of 9.1% seen in the summer of 2022.  The co-called “core” rate, which excludes  volatile food and energy prices, was up 4%, down from a peak annual rate of 6.5%.

That is all well and good.  But consider this chart, showing the changes in the overall CPI, the core CPI, and two other indexes, one excluding shelter from the core index, and the other also taking out used car and truck prices.

Cumulative Inflation looks better if we take out the volatile stuff, not only food and energy but also shelter and even used car and truck prices.  But all those indexes are up substantially since the end of 2019 – a few months before the Pandemic hit – and all are at their peaks.

Some indexes are considerably below their Pandemic peaks.  Whether or not that makes you feel good may depend on when you start counting. 

It was the car and truck market that caught huge attention early in the Pandemic.  When the Pandemic hit, one of the first things to crack was car rental prices.  The main customers are tourists and travelling business people – and both those markets evaporated. By May 2020, the index of car and truck rental rates was down 28% from five months earlier.

The rental companies – Avis and Hertz and their competitors – panicked.  They stopped ordering new cars. Some even dumped cars they had well before they normally would have been sold.  Car makers cut production.   Then supply chain problems – notably in computer chips – kept the car makers from ramping up production when demand did come back. The car rental companies – normally a major supplier of used cars – had no cars to sell since they had cut back so much.  Used car prices soared, and new car prices followed, albeit with less vigor.

Now used car prices and car rental rates are down substantially from their Pandemic peaks, but are still up a lot from the pre-Pandemic levels.  New car prices did not go up as much, but they have not come down at all.

This table, from the Financial Times yesterday, shows the changes in prices over the past 12 months of many of the indexes:

So inflation rates are down a lot, and some of the most egregious price increases have been partly reversed.  But overall it is easy to understand why a lot of people think inflation remains a big problem, whatever the economists say.