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Comment by ajross | Hacker News Reader

So... are the "it's transient" people owed an apology? (Edit: no, of course not, see replies for all the new reasons why that don't match the original analysis. Partisan orthodoxy wins again!)

This is pretty much what everyone serious was predicting. The inflation burst was driven by a savings glut (caused by the pandemic and excess assistance programs), a hiring boom and attendant wage pressure, and supply side shocks due to sanctions against Russia and a late pandemic wave in China.

Everyone one of those factors could be seen to be temporary at the time. And... now that they're all (mostly) behind us, inflation is dropping as expected.

But yet everyone had elaborate stories about how all that stuff didn't matter and how this was really due to (a somewhat partisan take on) monetary policy. Is anyone maybe revisiting their priors?

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> So... are the "it's transient" people owed an apology?

no, they claimed inflation would abate without Fed intervention

important to remember that the inflation rate is still more than 2x what the Fed deems acceptable, a victory lap may be premature

Monthly numbers are in the 1-2% range, so no current inflation isn't above the Fed's "acceptable" inflation rate, it just isn't measured on a small enough scale for this release to talk about it.

> Monthly numbers are in the 1-2% rang

2.5%-7.5% annualized for recent months, using the Fed’s preferred measure (PCE, not CPI)

Where did anyone claim that? That's a pretty big rewriting (in my view) of history, so please back it up!

> important to remember that the inflation rate is still more than 2x what the Fed deems acceptable, a victory lap may be premature

Only because of the 3 most distant months of the 12 month moving average. Those 3 months were 3% by themselves (not annualized), and the last 9 months have been 2% (not annualized).

Unless rates spike, inflation is going to drop below 3% in June. And it would take a ridiculous swing for it to not drop below 4% in June.

> no, they claimed

That's sort of meaningless without an antecedent for "they". What I'm referring to is the chorus of voices (heard very loudly here on HN) that claimed that the 2022-23 inflation burst was the inevitable results of government money printing out of control, and that that it was unresolvable absent large-but-largely-not-identified cuts in out of control deficit spending.

Now, everyone wants to pretend that the fed rate hike did it all and that no one was ever talking about financial policy? Meh. Inflation reducer go brrr... I guess.

Fed policymakers had predicted there wouldn't be any rate hike before 2024, then they predicted there would be two by late 2023[1]. We've had nine rate hikes since then.

I think the correct reading of the situation is that inflation wasn't transitory, which lead to the Fed raising rates much soon, much higher, and much more frequently than they anticipated (which is why SVB ran into so much trouble), and the heavy rate hikes eventually got inflation under control (which was the entire reason for the aggressive rate hikes).

[1] https://apnews.com/article/inflation-health-coronavirus-pand...

> So... are the "it's transient" people owed an apology?

Not really, the transience predictions were for inflation to ease a year ago.

Those predictions were made before the war in Ukraine.

Or, more likely, inflation is falling because interest rates are rising. Interest rates staying low because of pandemic fears is the reason we had this gigantic inflation - interest rates rising to levels that are actually reasonable are causing inflation to slow.

Interest rates are a second order impact on the money supply, high enough interest rates may stop monetary expansion - if they reign in lending. This works fairly well in the states where the fixed rate long term loans provide a huge disincentive to new lending (say moving to a bigger house), but not so much elsewhere (it is actually possible to have both high inflation/monetary expansion, and high interest rates - it depends a lot on details of the local financial system and its regulation.)

So its probably correct to say that the monetary contraction the US is currently experiencing is due to high interest rates, but that doesn't stop the inflation that has already been caused by initial money printing.

There is a significant lag between rate changes and effect, unless its a second-order expectations effect. Following folks like Noah Smith and Brad DeLong[1], I suspect that it isn't the rate hikes, and the rate hikes are actually threatening an uneccessary recession.

[1] https://noahpinion.substack.com/p/is-the-fed-hiking-too-fast

> Or, more likely, inflation is falling because interest rates are rising.

Yes, the existence of the Fed and the fact that it does monetary policy is part of the given for most of the people who predicted the inflation surge would turn out to be transitory, rather than durable.

> Interest rates staying low because of pandemic fears is the reason we had this gigantic inflation

They are a factor, more precisely, the combination of monetary and fiscal stimulus enacted in response an economic slowdown that, in retrospect, turns out to have been both one of the most rapid on record, but also extremely short and with a rapid rebound, overshot in monetary effect terms, leaving the US largely all in on stimulus during one of the most powerful economic rebounds in history.

Central banks embarked on the largest and fastest hiking cycle in a long time.

Nothing at all transitory about it.

The inflation burst was driven by money printing by the Federal Reserve/Government repeated by other governments world wide during the Covid pandemic, in order to prevent the financial system imploding as everybody defaulted on their debt. Attributing it to a "savings glut" - which I know is the mainstream interpretation is darkly hilarious.

Once that has happened, the hard part is predicting how long it will take the impact to bleed out of the system - i.e. the lags - and knowing that inflation is measured over a year, the answer is at least a year after the money supply stabilises.

Said money supply:

https://fred.stlouisfed.org/series/M2SL

btw. the way its currently contracting... that's bad. Really, really bad. They need to stop that quickly, before it does any more damage.

there is no expected deflation. So we keep paying the prices as if there is currently a hiring boom, savings glut, wage pressure, and supply side shock.

Even though all of those have stopped by now, we're still paying even more (5%) than during that time. Pretty crazy

And even when inflation eases, I don't think anyone expects to pay 2019 prices for anything in the next 2 years

No I don't think so. Look at the current interest rates. Monetary policy is the hammer as theory implies.

no, they were completely wrong on this full stop. The fed had to do an aggressive rate hike. By your logic the great depression and great recession was also transitory*

everything is transitory. Unless people define their words differently.

> no, they were completely wrong on this full stop. The fed had to do an aggressive rate hike.

Yeah, I think one big difference between the “transitory” and “not transitory” camps is that the former camp tended to take “the Fed will continue to exist and engage in monetary policy in response to economic indicators” as a given, while the latter either a assumed no monetary response or vastly underestimated the effectiveness of monetary policy response.

> By your logic the great depression and great recession was also transitory

Even with policy intervention, neither of those resolved quickly, so, no, by the definition by which the post-COVID-recession inflation surge appears to have been transitory, those would still not be transitory.

Most people who are experiencing and talking about "inflation" are experiencing and talking about the increases in food and energy which, for the most part, haven't gone down. It just goes to show you that the food price increases were never inflation, just them realizing they could price gouge under the cover of inflation.

This may not matter for capitalists and finance industry jargon heads who don't have to personally worry about food and energy, but for most of us it's a substantial part (if not >1/3) of our monthly bills.

What is price gouging exactly? How can we determine whether a particular price level is due to gouging or other factors?

In this case price gouging is when there's a natural disaster going on and grocery and consumable CEOs explicitly say they're raising prices because of this cover preventing consumer backlash.

> Colgate CEO Noel Wallace: "What we are very good at is pricing."

> Kroger CEO Gary Millerchip: "We’ve been very comfortable with our ability to pass on the increases that we’ve seen at this point, and we would expect that to continue to be the case."

They wait for a disaster to price-gouge and then they use their market power to make us all poorer while at the same time reporting record profits. If you don't like the phrase price gouging maybe "excuseflation" will work (ie, the eggs incident aftermath).

Ahh yes, everybody started losing their minds when prices went up during the pandemic at the same time celebrating when gas prices fell during the pandemic not realizing that it’s basically the same economic mechanism.

Supply and demand is a sadistic but beautiful bitch that occasionally gives you some of that good lovin’ you enjoy with that beating you don’t.

> the increases in food and energy which, for the most part, haven’t gone down

Energy inflation is -6.4% year over year in the last CPI report, as well as being down month over month (both “raw” and with seasonal adjustments).

What on Earth are you talking about? (Yes, Food inflation is still fairly high, energy though…if anything, one of the drivers of continued inflation fears despite the low trend of the last several months is that the current low inflation is substantially dependent on energy inflation, which is generally historically highly-volatile, being negative.)

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