It should never surprise us how short-sighted financial market participants and economists are, given that they all make their living by making moves or commenting on the moves of others on a daily basis. And yet, I am still disappointed that the recent talk of elevated inflation has not been met with more context. Yes, I know that the consumer price index (CPI) rose by 6.2% in October, the largest increase in decades, but why do we never hear about how that compares with 2020 or 2019?

Corporations have been quick to compare 2021 financial results with 2019, the so-called “two-year stack,” because everybody knows that 2020 was an anomaly in terms of sales and profits. Why no talk that maybe 2021 was also an anomaly in terms of inflation?

It reminds me of when people freak out every time gas prices at the pump spike temporarily. Oh my goodness, can you believe gas is $4 a gallon some places in the country? Somebody has to do something about this out of control inflation right away, they say. In reality, gasoline prices have been lagging overall inflation for decades. They should be the last item people complain about when it comes to price increases.

According to the U.S. Energy Information Administration, retail gas prices today average $3.30 per gallon. Ten years ago it was $3.31. The U.S. hit $3 for the first time right after Hurricane Katrina, more than 16 years ago. Yes, gas prices tend to be volatile and thus when you look peak to trough periodically increases will look gigantic. But if you look at the longer term data, gasoline has actually been a relative boon for consumers’ wallets.

Unsurprisingly, the same logic extends to inflation. Focusing on just the CPI figure for October 2021 ignores that for the 2 years before that, October CPI has averaged 1.5%, for a 3-year average of +3.1% (hardly something to be overly concerned about).

Given that in any single year these inflation figures, whether it be for a single item like gas or the entire basket, can be volatile, I think multi-year trends are key. It’s one thing if we get 5% inflation for a year and then it recedes. It’s entirely another if we get that level of price gains for 2-3 years straight.

So when do we start to lap what very well could be one-time pandemic-related spikes in the CPI? Not until the spring of 2022 (the CPI first hit 5% in May 2021). If we get another 5% print this coming May, okay, maybe there is something more going on here that has a long-lasting impact. But if we get a 3% print in May 2022 and 1-2% in May 2023, history will have once again played out as it usually does, with mean reversion telling a completely different story than a single isolated data point.

I suspect that is what Fed Chair Jerome Powell is thinking when he downplays the risk of longstanding inflation well above historical trends. I think it is more likely than not that we see a similar outcome this time around, though zero interest rates are probably still not the correct policy decision.