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Inflation is increasingly a lot like the weather: everyone talks about it, but no one does anything about it.

The Commerce Department released its version of an inflation report on Friday. Called the Personal Consumption Expenditure Price Index, this is the measure of inflation preferred by the Federal Reserve ever since the Fed ditched the Department of Labor's Consumer Price Index sometime around the turn of the century. The official reason for the divorce was that the expenditure weights in the PCE can change as people substitute away from some goods and services toward others—making it a more timely read on prices paid by households—and that the PCE includes more comprehensive coverage of goods and services than the old fashioned CPI.

Cynics at the time accused the Fed of favoring the PCE Price Index because it tended to show lower inflation. Back then, people thought that the Alan Greenspan-led Fed was looking to downplay inflation. The punchline to that joke is that after the financial crisis, the Fed's big project was trying to raise inflation to two percent a year—a task it failed at for nearly a decade.

The good news—if you want to call it that—is that the long history of undershooting inflation has come to an end. Annual PCE inflation came in at 4 percent in June, the highest rate since June of 2008. Core PCE inflation, which strips out food and energy, hit 3.5 percent, the highest level since 1991. This is far above anything forecast by the Federal Reserve earlier this year. But it actually slightly undershot Wall Street's expectations for 3.6 percent core inflation.

Changing inflation expectations were the theme of Friday's University of Michigan report on consumer sentiment from Richard Curtin. Expected inflation over the next year rose to 4.7 percent from 4.2 percent in June. That’s the highest level in over a decade. Consumers remain quite relaxed about inflation over the longer-term, seeing five-year inflation averaging 2.8 percent. That may be about to change, Curtin warns, because an "inflation storm" looms just over the horizon as consumers are increasingly willing to pay up for goods and services on the grounds that it's just a temporary blip due to the reopening. That, however, is enough to "generate an upward spiral in prices and wages," in Curtin's view. Add to that a Fed determined not to raise rates and a Democrat-controlled government determined to spend trillions. It may not be enough for an inflation hurricane, but we won't be surprised if a tropical storm or two hits.

– Alex Marlow & John Carney
Breitbart News Network