Just look at the recent past. We’ve been deficit spending since 08 without any appreciable inflation.
Then fuel and commodities prices surge because of war-induced shortages and BOOM! prices rocket double digits.
Now we are seeing the effects of that offset being removed.
Globalization didn't just make stuff cheaper. Supply and demand says that the price would not go down (regardless of the cost of manufacturing) if there wasn't more of it than there had been. Globalization increased the "stuff" part of the economy.
This. Inflation always is too much money chasing too few goods. Secular shortages give you too few goods. Loose monetary policy (or fiscal policy) give you too much money. (A tight monetary policy can immunize effects of a loose fiscal policy - if there is institutional will.)
Though, my understanding is that the post-pandemic inflation was driven by (A) a supply crunch [1], & (B) increased profit taking [2]. For (A), recall that boats were queued up off of LA with a months long backlog - there just wasn't the stuff available for people to buy. For (B), see [2] as a reference which states corporate profit contributed "a lot" to inflation in 2021
Then (C), a war broke out with a major energy producer as one of the participants. This pushes global prices up, particular energy prices which then increase transport and all other costs.
As far as (D), money printing; my understanding is that really is yet to be seen what kind of impact that would have and it will take some hindsight to know. It looks to me like this point is overall a subject of active debate (so, we don't really know the impact of money printing just yet).
[1] https://www.kansascityfed.org/research/economic-bulletin/cor...
[2] https://www.usbank.com/investing/financial-perspectives/mark...
I.e., lower priced goods don't counteract the effects of increased money supply, they counteract the effect of increased money supply on the measurement of inflation.
You realize that inflation is back at baseline, right? Were those effects added back to the economy somehow and I missed it?
I remain amazed that people continue this argument: the "transient" camp was correct. Inflation came, for largely the reasons that the boring economists[1] said, and went away, likewise. No one is going to be able to claim to have a good numeric model on this stuff (feedback systems are hard), but if nothing else the "Here is a Simple Rule to Explain Economics that Confirms all your Priors" rhetoric should be ejected, right?
[1] As opposed to the partisan axe grinders. Next time, maybe believe the tweedy professors in preference to the talking heads?
Not in the US or GB. From which country are you writing?
The only reason people are bent out of shape about it is that it was high, briefly, for about 11-13 months or so, and they internalized the debate about it based on a partisan frame that's very difficult to escape. But please try.
I'm sure in any major US city I can find a pair of Khakis for $10 (thrift store) or $1,000. We all get to set our own inflation in the new economy.
I think this is now unprovable. "Transient" and "transitory" were never given a precise definition by the central bankers who began using those terms, but when around 2021 when the term was being used by the Fed, it was used in context to refer to inflation that returns to target by itself, without requiring a hawkish policy intervention by the Fed. As the Fed has now strongly intervened, it's almost impossible to investigate the counterfactual of whether inflation would have returned to 2% without their having done so.
> Federal Reserve Chair Jerome Powell suggested Thursday that inflation will pick up in the coming months but that it would likely prove temporary and not enough for the Fed to alter its record-low interest rate policies.[...] “We think our current policy stance is appropriate,” Powell said.[...] Once price declines that occurred about a year ago when the pandemic began are removed from the year-over-year calculations, inflation will temporarily rise. But the Fed won’t see either of those trends as worrisome increases that would force them to change their policies, Powell said. “If we do see what we believe is likely a transitory increase in inflation, where longer-term inflation expectations are broadly stable, I expect that we will be patient” about making any changes, he said. Higher inflation is unlikely to persist, Powell said, because most consumers and businesses expect mild prices gains, and therefore will keep their prices and wage demands in check. [1] (March 4, 2021)
> Powell: "Overall inflation remains below our 2 percent longer run objective. Over the next few months, 12 month measures of inflation will move up as the very low readings from March and April of last year fall out of the calculation. Beyond these base effects, we could also see upward pressure on prices if spending rebounds quickly as the economy continues to reopen, particularly if supply belt bottlenecks limit how quickly production can respond in the near term. However, these one-time increases in prices are likely to have only transient effects on inflation. The median inflation projection of FOMC participants is 2.4% this year and declines to 2% next year before moving back up by the end of 2023.[...] With inflation running persistently below 2% we will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer term inflation expectations remain well anchored at 2%. We expect to maintain an accommodative stance of monetary policy until these employment and inflation outcomes are achieved. With regard to interest rates, we continue to expect it will be appropriate to maintain the current 0 to 1/4% target range for the federal funds rate until the labor market conditions have reached levels consistent with the committee's assessment of maximum employment and inflation has risen to 2% and is on track to exceed 2% for some time. I would note that a transitory rise in inflation above 2%, as seems likely to occur this year, would not meet this standard." [2] (March 17, 2021)
> Powell, however, downplayed concerns that these trends could trigger sustained high inflation. He said he expects supply bottlenecks to cause only temporary price increases. “An episode of one-time price increases as the economy reopens is not likely to lead to persistent year-over-year inflation into the future,” he said. Clogged supply chains won’t affect Fed policy, Powell said, because “they’re temporary and expected to resolve themselves.” [3] (April 28, 2021)
> While much of Wall Street is ringing alarms about out-of-control inflation, Federal Reserve Chair Jerome Powell and his colleagues are expressing confidence in a more benign outlook. Acceleration in U.S. price growth this year will have “only transitory effects on underlying inflation,” Fed Vice Chair Richard Clarida said Wednesday, playing down that consumer prices climbed in April by the most since 2009. Governor Lael Brainard said the day before that officials should be “patient though the transitory surge.” Powell has made the same argument. While policy makers expect the Fed’s preferred measure of inflation to rise to around 2.4 per cent this year as the economy reopens and the pandemic recedes, they forecast it to return to their 2% goal for 2022. [4] (May 13, 2021)
[1] https://apnews.com/article/powell-higher-inflation-temporary...
[2] https://www.bloomberg.com/news/videos/2021-03-17/fed-s-powel...
[3] https://apnews.com/article/financial-markets-health-coronavi...
[4] https://www.bnnbloomberg.ca/fed-leaders-are-confident-inflat...
It was low. Then it was high. Now it's "slightly above average". That seems like a good enough definition to any reasonable person not otherwise polluted by an agenda. You can cherry pick areas where the illuminati were wrong, because you can always do that. But they were, well, less wrong than you were. So that's something, right?
The contention I responded to upthread was that we were somehow in a new historical era of high inflation, owing to a particular set of partisan policy arguments. And that's wrong. Period. We aren't. We just aren't, and you can see that too, right?
And no, that definition is too simple. There are several camps here, and several ways to be wrong:
A) Inflation will be transitory, therefore, we don't need to worry about it, and the Fed can keep interest rates low.
B) Inflation will be transitory, because even if it starts getting out of hand, monetary policy will take appropriate action to bring it back to target, no matter how painful.
C) Inflation will not be transitory unless central banks take unprecedented action. I don't know if they will do that or not, but they should.
D) Inflation will not be transitory, because central banks aren't going to tighten monetary policy. It would be too painful. Because they will keep real interest rates negative, inflation will continue.
E) Inflation will not be transitory, regardless of what monetary policy does in response. We're on the path to never-ending Argentinian-style inflation.
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As the quotes (and the bond market) show, (A) was the common view among institutions in 2021, including central banks, and a lot of the pushback against inflation being "transitory" was in opposition to this view. The usage of "transitory" to justify continuing stimulative monetary policy indicates that Jerome Powell was firmly in camp (A) until at least late 2021. This was very concerning to many people who thought that inflation was much stronger than the central bank anticipated, and monetary tightening would be needed, and this is what drove most of the agitated commentary saying "they're wrong about it being transitory!", including mine. The Fed appears to have eventually come around to that view, right or wrong. It is now difficult to disentangle (A), (B), and (C), because between 2021 and now, monetary policy pulled an abrupt U-turn that roughly coincided with the start of disinflation, which all the (B), (C), (D), and (E) camps were pushing for. (D) and (E) are arguably disproven by the data, unless we see another big round of inflation. But since many of the "inflation is not transitory" voices were in camps (B) and (C), those viewpoints are not unsupported by the data so far.
I, for one, was never in camp (E), but I was in camp (D) until the Fed eventually changed my mind.
We saw that in very limited cases, but prices broadly are still higher than before and it isn't realistic to expect prices to comeback down The only real argument is if we compare against absolute highs in price shocks due to panic toilet paper buying, baby formula production issues, etc.
Inflation is just a rescaling. Everyone loves to say it's not, but it is. Prices are higher and wages are higher and assets values are higher. It all happens together, though not in perfect lockstep.
If people wanted to complain about real (where "real" means "inflation-corrected") wages falling, they would be screaming about it, because that would be terrible. Except that real wages are INCREASING and have been pretty steadily all through the inflation burst.
The S&P 500. You think that bull run was really just because of the goods and services made? Hell no, it was QE and LIRP.
You can also see the USD destruction during the Bush years, when you look at the GDP, priced in dollars, of other economies. Their GDP figures soar at dramatic rates when set in USD, because of how much damage is being done to that specific currency. So for example the Czech economy went from $67b in 2001, to $156b for 2006; now does anyone actually believe their economy grew by ~132% in five years? It did not, that's the dollar destruction in action (and you can see that exact same thing in most non-US economies at that exact same time; it represents the USD losing enormous value).
There was huge deficit spending under Reagan, and gold remained flat. There was little deficit spending under Clinton (who managed to create a US budget surplus), and gold remained flat. No correlation in either direction there.
* https://goldbroker.com/charts/gold-price/usd#historical-char...
There was huge deficit spending for the Bush years of 2001-2008, and yet gold didn't really jump in his first term, though it did rise in his second.
Gold went up in Obama's first term, but tanked in his second—even with QE and its supposed "Money printer go brrrr" effects. People were complaining that the 2% inflation target was too low during and after Obama (and into Trump's administration) because of concerns about ZIRP and ZLB:
* https://www.imf.org/external/pubs/ft/wp/2014/wp1492.pdf
* https://www.epi.org/publication/is-2-percent-too-low/
* https://en.wikipedia.org/wiki/Zero_interest-rate_policy
Personally, over the course of 40+ years of various monetary rate and fiscal spending policies, I see zero correlation between them and the price of gold. I think it's better to look at behaviour finance (and animal spirits) for the reasons for the changes in gold prices.
We've had bull runs ("bubbles"?) in previous years/decades without QE or LIRP/ZIRP: the 1990s for one. We've even had them with non-fiat, fixed money supplies: see 1920s Wall Street during the Gold Standard. Also canal mania and railroad mania.
With the large budget imbalances we've seen recently it seems reasonable to expect that increase in the money supply and new demand to have some impact of the economy. If it didn't, I'd argue we need to fundamentally rethink the core concepts of economics all together.
Now whether the spending was a larger than the impact of wars I have no idea. I'd also be very suspicious of any research that attempts to model such a drastic alternate reality and come up with any meaningful comparison.
It wasn't until the pandemic and some of the money was sent to poor and middle class people that the prices in the grocery store rose. However, long before that the price of the grocery store market cap had inflated.
> Just look at the recent past. We've been pumping water into the lake since 08 without any appreciable flooding.
> Then the dam broke and BOOM! floodings rocket double digits.
The war-induced shortages may be the proximate cause of inflation, but maybe it wasn't a good idea to keep pumping that water in the first place, in particular, with the knowledge that dams always break sooner or later anyway.
By which metrics lead you to conclude that pumping trillions of printed dollars into the economy is relatively harmless?