“U.S. Inflation Is Highest in 13 Years as Prices Surge 5%,” screams the June 11 Wall Street Journal headline, “the largest since August 2008 when the reading rose 5.4%.” An editorial adds, sarcastically, “Don’t worry, Americans. The Federal Reserve says inflation is ‘transitory’… ” Well, the 5.4% spike in August 2008 certainly turned out to be transitory, dropping to minus 2% by July 2009.

The key source of confusion then and now involved extreme gyrations in the price of oil. In 2008, the price of West Texas Intermediate Crude soared to $133.40 a barrel in July, which crashed the economy just like every other big oil price spike. Recession briefly pulled oil down to $39.10 six months later. The CPI less energy was up only 3% in July 2008 and 1.4% a year later.

This Spring, year-to-year changes in all price indexes are badly distorted because the CPI fell 7.6% from February to May last year. As the Journal article concedes, the misleading 5% CPI headline rise since May 2020 shrinks by half to 2.5% a year if we look at two years instead of one.

The first pandemic peak brought paralyzing terror and extreme economic lockdowns at home and abroad. Prices collapsed worldwide, particularly prices of internationally traded commodities such as crude oil, with WTI crude dropping to $16.55 in April 2020 (and much lower in late April) before recovering to $65.17 this May. Prices of oil, metals, and other commodities could not possibly have remained as depressed as they were a year ago unless the world economy was still as shut down as it was then.

This May, energy prices in the CPI were up 28.5% from a year ago. But that illusory “inflation” was entirely because energy prices (not to mention airline fares, used car prices, etc.) were extremely low a year earlier: “The energy index was unchanged in May after declining slightly in April.”

Energy accounts for merely 6.9% of the CPI – half as important as food (14%). But energy prices swings can be so extreme and so quickly reversed that they overwhelm and falsify reported inflation numbers. If we exclude energy prices (as I argue is essential), the annual increase in the CPI less energy was 2.6% a year over the past two years. Much of the recent hyperbole about inflation is mainly driven by a big year-to-year drop in energy prices last March-April followed by a recovery to pre-pandemic prices as the economy reopened.

Excluding energy prices, the year-to-year rise in the CPI less energy was 3.5% in May and only 1.9% as recently as March. It seems too soon to assume April and May marked the start of a scary new trend.

The same Journal article that inadvertently compares May’s year-to-year increase in energy prices with a similar transitory rise in August 2008 makes an even more misleading comment. It says, “prices jumped at a 9.7% annual rate over the three months ended in March.” If that made statistical sense, we could likewise say that from June to August of last year we suffered a 5.7% annual rate of inflation (very briefly). But three or four months is not a year, so “annual rate” is a misnomer.

The wild swings of global oil prices over the past year –as in 2008 to 2009– make it imperative to exclude energy prices (but not food) when trying to understand general inflation trends. When we do that and look at two-year periods to avoid being misled by last Spring’s pandemic trough, the apparent contradiction between supposedly high inflation and low bond yields is resolved: The bond market is informed and informative; sensational 5–9.7% CPI numbers are not.

It is rarely prudent to be too sanguine about inflation. I am as concerned as The Wall Street Journal editors about inflation and other risks from runaway federal spending and a Federal Reserve Board stockpiling huge hordes of federal IOUs. But presenting inflation statistics in misleading ways suggests “confirmation bias” which is not the most persuasive way to confirm the prescience of our theoretical presumptions.