This exactly why fixed inflation targeting is a bad idea and Market Monetarist advocated NGDP Level targeting and New Keynesians simply want the Central bank to do that correctly manually.
Consumer Price Level measures might be useful for other things, but not at input for your central banking function.
The supply shock you need to be worried about is the shocking oversupply of new dollars competing for the same resources.
It’s not a surprise that we’ll hear tons of information saying that printing money isn’t a bad thing, or that it isn’t the cause of any current monetary outcomes.
> As a result, though, many people may now be eligible for substantially more money while unemployed than they made while they were working. A new analysis by Peter Ganong, Pascal Noel and Joseph Vavra, economists at the University of Chicago, uses government data from 2019 to estimate that 68 percent of unemployed workers who can receive benefits are eligible for payments that are greater than their lost earnings. They also found that the estimated median replacement rate — the share of a worker’s original weekly salary that is being replaced by unemployment benefits — is 134 percent, or more than one-third above their original wage. A substantial minority of those workers, particularly in low-wage professions like food service and janitorial work, may end up receiving more than 150 percent of their previous weekly salary.
https://fivethirtyeight.com/features/many-americans-are-gett...
I used to think this way as well, but after browsing /r/wallstreetbets I am not at all convinced you need to have wealthy or responsible to invest/trade/gamble in the stock market. And unemployment abuse is a larger more complex topic.
Are you arguing people aren’t relocating or something to that effect?
You might say "oh, well the rich are bidding up gas and food prices, poor people can't afford and ummmm drive and eat less". It sounds silly and it should but even if that were happening, and was the sole causal factor, it would mean the food and gas markets were not clearing, and that is clearly also not happening.
And even if that were happening the sellers would be being irrational. For surely they would lower prices after the rich were fed and gassed up so they could sell the remainder of their goods, and make more money. (the profit rate would go down but the total profits would go up.)
No matter how you cut it, the Monetarist story is false and ridiculous given the evidence.
Another example--the federal government enables "easy money" as higher education loans, which has enabled universities to massively overcharge for mostly low quality education.
The data doesn’t seem to support this, at least not yet. The owner occupancy of units has been increasing since 2016 and increased after 2020.
The increase in housing prices has been extraordinary, but seems in large part due to people who actually intend to live in that housing.
The monitarists' conception of inflation is a temporary distortion where all the money stock and flows pick up. What you are describing is a spacial distortion where certain people / goods get unfair treatment. The latter is indeed quite dubious, but it's not the same as the former!
Conventional monetary policy is lame and fairly ineffective, but I have seen claims that raising rates is better at destimulating than lowering is at stimulating. What a tough nuance to convey!
It did go down. Now its back to normal.
Source?
This is what I could find: Personal Consumption Expenditures
Also savings rate has gone back down after a spike that coincided with stimulus payments
Now it could catch up, or Omicron could blow over and we continue fixing supply chain issues.
The traffic jam is just the echo of the initial accident, remember.
It's not about being useful, but about the fact that the mob is growing more unhappy every day because their buying power is dwindling, which in turns makes elected politicians quake in their boots.
And as much as everyone would like to claim or even in some case believe that central banks are independent entities, this is a complete pipe dream, they are - at the very least - subject to influence peddling like everyone else.
Inflation originally meant 'an increase in the money supply' (what we now call m1), which is what we've seen over the past two years. When the governments enacted their responses to COVID, many predicted 'inflation', and some denied it would happen. Does this count? What would 'count'?
/s
If we get to choose which categories get excluded from CPI after every bad report it ceases to be a good metric.
Home purchase price was taken out of CPI-U in 1983 (and CPI-W in 1985) and replaced with an owner-equivalent rent measure that gets at the cost of consumption of shelter (the service that housing provides).
Tl;dr: Housing expenses were not removed; house purchases were (and replaced with a rent-equivalent measure).
The accusation is that OER is a terrible way to measure rent increases. OER is determined by surveys asking homeowners "If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?"
It's a crazy way to measuring housing inflation for most people. Especially since there are statistics that directly just measure rent increases and the BLS could use those.
> At what point do you acknowledge that there has been a general increase in the price level? If you agree that there has been an increase, when do you think it counts as 'inflation'?
Inflation is an rise an average of prices. It is a symptom, not a single disease.
Monitarists might say there is "the" inflation where all the prices go up, and no good "real activity" excuse to point the finger that. That's like...just their theory, man.
Until the panic is clearly done and production is clearly stabilized, occam's raiser says don't worry about such spooky stuff.
Its not about 'acknowledging' increases in the price level, The price level CPI measure is just a measure, if it goes up, I do 'acknowledge' that.
However, what and if monetary policy should be, should not be guided by CPI inflation.
> Inflation originally meant 'an increase in the money supply' (what we now call m1), which is what we've seen over the past two years.
This is true for a very long time ago but has not been used like that for many decades.
Bringing that point up is really a non issue, even in the 70s people were not using it like that. Basically no modern economics has ever viewed it like that.
This is just a confusing point and argument about language. Yes, if you use that definition inflation has been high, but that does not actually change the policy response at all.
> When the governments enacted their responses to COVID, many predicted 'inflation', and some denied it would happen. Does this count? What would 'count'?
Again, you seem to be not at all understanding what I am arguing. I am not arguing that inflation doesn't exist.
CPI Inflation simply doesn't mean what people think it means in terms of central bank policy.
I have made no statement about what central bank policy should be, I have not actually studied the numbers in detail.
Not necessarily.
> Well, we are finding that to be less and less true. So something else is going on beneath the surface.
That's fine. We have ways to do monetary policy while accepting whatever else is going on.
If you target NGDP Levels your demand function already balances supply and demand correctly by itself.
>That's fine. We have ways to do monetary policy while accepting whatever else is going on.
That assuming you think the Fed won't make a major policy mistake or hasn't already. You act like monetary policy is simple, it's not. I think MMTers have ruined a lot of people's perception on the complexity of monetary policy.
If there is a supply shock, you will have lower real growth but monetary policy will not react to that because its a real signal.
Market Monetarists were very active training to tell people that the Fed in 2008 were actually deflationary. That I think is what eventually will be the consequences, just like it is with the Central Bank.
I'd think that the root supply issues were easing over last year, so much of what we are seeing is still an echo what's already come.
If omicron blows through as fast as it arose, I'd say things are looking up. Still team transitory.
If they are not hitting targets its just bad leadership.
So never fall into the trap of thinking the central bank has not 'teeth'. They could hit almost any target they wanted.
The only thing that needs to change is the mind of people on the control board.