Inflation, deflation and vibration – Infobae

Over the past six months, the deflator for personal consumer spending excluding food and energy – I know it’s a small amount, but it’s the Fed’s preferred measure. Core inflation– He arrived at A Annual rate of only 2.5%down from 5.7% in March 2022.

The Fed’s inflation target is 2%, so we are not there yet. Don’t expect the Fed to declare victory anytime soon. As I can tell you from personal experience, anyone who suggests that inflation is more or less under control can expect a barrage of hate messages and hostile comments on social media. I think the force with which some Americans insist that inflation is still runaway also distorts coverage in the mainstream media, because journalists are reluctant to say anything positive. The Fed will have to be especially careful, because it will lose credibility if inflation rises again after appearing too optimistic.

But the truth is that inflation is very similar to yesterday’s problem.

But wait, don’t people really have to buy food and energy? Well, there are good reasons for policymakers to look at “core” measures excluding components that jump so much, but if you’re paying attention, prices including food and energy have risen at an annual rate of… 2.5%, the same as core inflation.

The better-known CPI is rising a little more quickly, at 3%, but that’s entirely because it gives more weight to housing, which is a very lagging indicator at the moment.

What is noteworthy is not only the fact that we have made a lot of progress in combating inflation, But it also appears that progress has occurred At no visible cost. Until now, it had beenThe contraction is pure“, which required neither a recession nor a significant increase in unemployment.

Before the crisis, there was on average a modest positive relationship between employment and inflation. But in recent years, inflation has risen to levels much higher than one would expect because of this relationship, and then declined rapidly without any significant job losses.

What does this story explain and how does it compare to economists’ predictions?

There were major disagreements among economists. I think that Almost everyone was surprised by the ease with which we reduced inflation. But some were more surprised than others.

I didn’t think that falling inflation was painless. He believed that the US economy was overheated, with demand exceeding supply, and he predicted that correcting this imbalance would involve some pain. “Reducing inflation requires cooling the economy, but not exposing it to a long-term depression,” she wrote in August 2022.

In reality, Reducing inflation did not require any job losses. How was that possible? Demand may have exceeded supply in 2022, but the gap appears to have closed Not by reducing demand but by increasing supplywhere the long-standing disruptions caused by the epidemic were resolved.

I think those of us who weren’t optimistic enough can be forgiven for not seeing it coming, even though I’m saying that, right? I believe the Fed was justified in raising interest rates given what we knew at the time I am now very concerned that the Fed has overstepped its bounds and should start lowering them soon.

But where did the extreme pessimism of some of my colleagues come from?

Many economists had warned that the American Rescue Plan, the large spending bill passed early in the Biden administration, would be inflationary, warnings that appeared justified by higher inflation in 2021-2022. In retrospect, these economists may have been right for the wrong reasons, with inflation eventually skyrocketing, not just in the United States, but almost everywhere in the world.

This indicates that Inflation may have less to do with overspending and more to do with pandemic-related shocks. But my big question is why many economists expected that the initial rapid rise in inflation would be followed by prolonged stagflation.

The point here is that we have a standard story about why it was so difficult to end inflation in the 1970s, a story built on the way inflation was handled in the 1970s. Persistent inflation has become entrenched in expectations. But this was clearly not the case in 2022. Thus, while inflation expectations in 2021 more or less reflected conventional macroeconomics, predicting stagflation after 2022 means ditching the textbook in favor of new arguments for pessimism.

Moreover, what surprised me in 2022 is that the arguments made by the leading pessimists for continued high inflation had no logical connection to the arguments they made for higher inflation in 2021. They expected the same thing, but for completely different reasons. There was nothing linking inflationary views for 2022 with those for 2021 other than the common bearish atmosphere.

Vibrations are not a good basis for economic analysis. In reality, Stagflation forecasts based on vibration -Vibration? – One might say that they turned out to be perfect Epic mistake.

© New York Times 2023