What the heck is going on? Well, maybe the disinflationary pressures just haven’t had time to work themselves through the system yet. Some commodities have been falling since the beginning of this year or even earlier, but oil and wheat — the two things most disrupted by the Ukraine war — only started falling in the last few weeks. So hopefully I’m writing this post for nothing, and in a month or two we can all breathe a sigh of relief as disinflation finally takes hold.

In fact, I still think that’s the likeliest scenario. But this month’s numbers show that we can’t count out the really bad scenario, in which the only way for the Fed to beat inflation is to raise rates really high — 8% or more. I talked about that in a post back in May…

The reason this bad scenario is still in play is that there are multiple kinds of inflation. And every month that prices go up despite tightening monetary and fiscal policy and falling commodity prices and wages, it increases the likelihood that we’re now in the really scary kind of inflation.