The latest reading for the Consumer Price Index (CPI) offered more good news about inflation.

Specifically, CPI inflation came in at only 0.1 percent for December. That’s a welcome slowdown compared to higher rates in the three of the previous four months. In fact, over the past three months, CPI inflation has settled down some, coming in at 0.1 percent in December, 0.4 percent in November and 0.1 percent in October.

For all of 2017 — from December to December — inflation ran at a tame 2.1 percent. That was the same rate as prevailed in 2016. For the past six years, inflation has averaged 1.5 percent.

In terms of actual inflation numbers, the record over the last six years has been solid.

At the same time, though, unprecedented loose monetary policy promulgated by the Federal Reserve for nearly a decade has created uncertainty regarding what might be on the horizon for inflation.

It’s becoming easier to stumble on experts crowing about faster economic growth generating inflation. Of course, that’s not how it works. Increased economic growth — by definition, a faster rate of economic output — works against inflation. We all should understand inflation is a monetary phenomenon that results, as the old saying goes, from too much money chasing too few goods. In the end, faster economic growth should make it easier for the Fed to find a way out of the mess it’s created.

Consider the monetary base skyrocketed from $875 billion in August 2008 to $4.2 trillion in September 2015 and subsequently wandered, with the December level coming in at $3.9 trillion. At the same time, bank reserves jumped from only $11.7 billion in late August 2008 to $2.8 trillion in mid-2014 and registered $2.2 trillion in December.
The question remains: What’s going to happen given these previously unimaginable levels of bank reserves?

In the end, if we see an acceleration of inflation in coming months, that would be the result of chickens coming home to roost over this bizarre stretch of monetary policy. It would not be due to faster economic and employment growth.