Today's New York Times headline and graph bugged me– nothing new there. The headline inflation number for December is 7.1%, which is calculated comparing prices (CPI) to December a year ago. Given the volatility of monthly inflation rates, smoothing by cumulating over 12 months of changes is not necessarily a bad idea, but it can give a very misleading idea of what inflation is doing right now. For example, if inflation had come to a screeching halt, and between November and December prices had not increased at all, the headline number compared to a year ago would still be about 6.5%, which looks pretty bad compared to the recent past. In fact, inflation for the month of December was still significant and concerning, running at over 5% annually, but it shows some evidence of having peaked. Kevin Drum has a nice graph illustrating this, which I reproduce below (see the blue line for monthly changes). I don't have a strong opinion about what will happen with inflation in the coming months, but the way the Times frames the numbers is alarmist and feeds a gloomy narrative that is not needed or warranted right now. [Addendum: More detail from Menzie Chinn]
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