CPI Inflation Tops 8.5% Over a Year in March

The Consumer Price Index (CPI) jumped 1.2 percent in March, and is now up 8.5 percent from a year ago – the highest year-over-year increase in 40 years. Excluding food and energy, core CPI inflation rose 0.3 percent in March and is up 6.5 percent over a year ago.

Inflation is almost guaranteed to remain elevated in 2022, after 6.7 percent (Q4/Q4) CPI inflation growth in 2021. 

Even with no net inflation over the next nine months, inflation would total 3.3 percent for 2022. If inflation runs at the target rate of 0.2 percent per month going forward, it will total 5.0 percent in 2022. Finally, if CPI continues to grow at its current pace from the year so far, we estimate there will be 10.8 percent inflation for 2022.

 

While it is chiefly the Federal Reserve's responsibility to bring inflation under control, policymakers should use fiscal policy to assist in this effort rather than to worsen inflation through further borrowing.

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Recent Student Loan Actions Forgo $5 Billion in Repayments

The Department of Education announced last week a six-month extension of automatic forbearance to all borrowers enrolled in the SAVE income-driven repayment plan while it is being challenged in courts, adding that they will forgive any unpaid accrued interest during that time. We estimate that the Department of Education is forgoing roughly $500 million of repayments per month, meaning that this extension would result in $3 billion in forgone payments, bringing the total amount up to $5 billion. Importantly, much of those payments will instead be paid later, and so the net cost would be some fraction of that $5 billion.

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