"Inflation blame game: Sorting out the culprits "Wonking Out: The Meaning of Falling Inflation "If You Must Point Fingers on Inflation, Here’s Where to Point Them"""
Sept. 15, 2022 Paul Krugman
Illustration by Sam Whitney/The New York Times; images by ilbusca and Kypros via Getty Images
And look, I get it. After a benign consumer price report last month, some people — including, apparently, a number of investors — had begun to hope for a fairy-tale ending to the 2021-22 inflation surge. This month’s report pretty much dashed those hopes (which, as it happens, I haven’t shared .. https://www.nytimes.com/2022/04/12/opinion/inflation-consumer-prices.html .. for a long time).
It’s important, however, to understand what the report did and didn’t show.
If you still believed that we might be able to bring inflation down to an acceptable level without any pain — specifically, without a rise in the unemployment rate — Tuesday’s report made it even harder to sustain that belief than it already was. There will, alas, be pain. But the report gave little indication, one way or the other, of how much pain will be needed, or how long it will have to last.
Economists often discuss these issues in terms of what’s happening to underlying or “core” inflation, then argue about the best measure of core inflation to use, to the bemusement of everyone else. So I was very taken with an alternative formulation by the economist Joseph Politano .. https://www.apricitas.io/p/inflations-next-chapter , who suggests that we distinguish between “immaculate disinflation” — a fall in the inflation rate that will happen more or less automatically as recent disruptions from the pandemic, the Ukraine war, etc. subside — and the “intentional disinflation” the Fed is trying to produce by raising interest rates.
And let’s not be antiseptic here: Intentional disinflation is very likely to involve lost jobs. For the purpose of Fed rate hikes is to reduce overall spending, almost surely leading to higher unemployment.
Now, immaculate disinflation isn’t a myth; it has in fact been happening lately. Overall consumer price inflation on a monthly basis .. https://fred.stlouisfed.org/graph/fredgraph.png?g=THO6 .. slowed sharply this summer, largely thanks to the switch from rising to falling gasoline prices.
But a look under the hood of the numbers makes it clear that immaculate disinflation won’t be enough. I’d like to believe otherwise; a year ago I did, indeed, think that inflation might largely cure itself. At this point, however, whatever your preferred measure of underlying inflation — inflation that won’t go away by itself — may be, it’s still running too high, and it shows no clear sign of coming down.
Although this revelation seems to have shocked financial markets, it shouldn’t have come as a big surprise. While interest rates have risen a lot this year, they haven’t yet had much effect on the real economy. Never mind claims that we’re in a recession; the reality is that unemployment is still near a historic low, and other measures, like the number of job vacancies .. https://fred.stlouisfed.org/series/JTS1000JOR , suggest that the economy in general and the labor market in particular are still running very hot. And we won’t get inflation down to an acceptable rate until things cool off.
An optimistic scenario might look like this: The Fed’s rate hikes cause the unemployment rate to rise, but only to 4-point-something percent, which is still pretty low by historical standards — and that’s enough to bring inflation down to 2 or 3 percent. The odds for that scenario are improved by evidence — like that New York Fed report I cited — that 2022 isn’t like 1980. Back then everyone expected high inflation to persist, so the economy had to be put through the wringer to squeeze those expectations out. Recent inflation expectations, especially for the medium term, have been low and falling.
Pessimists .. https://www.brookings.edu/bpea-articles/understanding-u-s-inflation-during-the-covid-era/argue, however, that the high rate of job vacancies implies that inflation control requires much higher unemployment than in the past; and (for reasons I don’t fully understand) they wave away the good news about expectations. So they end up arguing that unemployment will have to rise much higher, perhaps above 6 percent.
As you might guess, I favor the optimistic scenario. I take the expectations data seriously, and I view high vacancy rates as being, at least in part, a temporary phenomenon in an economy still adjusting to the effects of the Covid-19 pandemic.
But the truth is that nobody knows for sure, and the fact that a hot economy is still producing heated inflation does nothing to settle the debate.
The good news, sort of, is that the Fed seems to know what it doesn’t know. It’s talking tough on inflation, as it must to retain credibility, but it’s also talking about looking at the “totality of the incoming data, .. https://www.federalreserve.gov/newsevents/speech/powell20220826a.htm ” which means that it’s prepared to ease off if and when inflation is clearly coming down.
My guess is that this moment will come sooner than many think. But we’ll just have to wait and see.
Opinion | Paul Krugman Has Bidenomics Been Good for Workers? Sept. 5, 2022 [Outed here: By Biden’s second Labor Day, the U.S. economy had added substantially more jobs on his watch than it did in the Trump administration’s first 37 months — that is, before Covid-19 put the economy into a temporary coma P - To be fair, many of the job gains under Biden probably reflected a natural recovery from lockdowns, and in general it’s easier to add many jobs when you start, as Biden did, from a position of depressed employment. On the other hand, employment has recovered faster than almost anyone expected. In late 2020, professional forecasters expected average unemployment in 2022 to be 5.2 percent; so far, it has averaged only 3.7 percent..] https://www.nytimes.com/2022/09/05/opinion/has-bidenomics-been-good-for-workers.html
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Paul Krugman has been an Opinion columnist since 2000 and is also a distinguished professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman
Some inflation's from opportunistic companies raising prices to gouge extra profits under cover of "inflation". But then they brag about in on investor conference calls.
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