Post by account_disabled on Feb 28, 2024 0:46:15 GMT -5
Financial markets are betting on a soft landing of lower inflation without recession. Economists talk about “immaculate disinflation.” Some go further and project that the U.S. success in fighting inflation will apply everywhere. There are even rumors that inflation was transitory after all and that the seemingly painless drop in US CPI inflation should force a major rethink of economic theory. It's been hot in many parts of the world, but people are getting a little excited. Some facts are needed to frame the debate. The drop in US CPI inflation from a peak of over 9 percent to percent in July this year cannot mask the huge overshoot of prices compared to targets. Over the past two years, this primary measure of U.S. inflation has risen 12 percent, an annual rate about three times faster than the 2 percent the Federal Reserve wants. In the eurozone and the United Kingdom, increases over the past two years have been even larger, at and respectively.
The very least we have had almost six years of expected inflation in just a couple. Prices rise more slowly, but do not fall. Everyone expected much of the price rise after the dislocations of the pandemic and the Job Function Email Database Russian invasion of Ukraine to be temporary. The concern was always that inflation would not fall to the 2 percent targets on its own and could become quite sticky on the way down. That is exactly what is happening and remains the concern. Even after the latest good data, the Fed's inflation forecasts for the end of this year, next year, and the year after that are unlikely to improve much. All the major mistakes have been underestimating the strength and persistence of inflation rather than overestimating it. You are viewing a snapshot of an interactive chart. This is most likely because you are offline or JavaScript is disabled in your browser. Despite the sharp drop in the headline rate, the US economy still appears to be performing well and the labor market has not yet returned to balance.
As members of the Federal Open Market Committee keenly observed at their last meeting, “nominal wages continued to rise at rates above levels assessed as consistent with sustained achievement of the committee's 2 percent inflation target.” If the United States has seen some encouraging trends without enough progress, Europe has not yet followed them. The European Central Bank had to raise its inflation forecasts in its latest predictions and core inflation measures have become sticky. And while UK statisticians may construct measures that show core inflation starting to fall, most data points still indicate an entrenched post-Brexit wage price spiral. The definitions of price stability do not include services inflation, which still stood at 7.4 percent in July, with annual wage growth of more than 8 percent. This is not the environment in which it makes sense for European central banks to declare victory over inflation. Central banks, of course, have become active inflation fighters over the past 18 months.
The very least we have had almost six years of expected inflation in just a couple. Prices rise more slowly, but do not fall. Everyone expected much of the price rise after the dislocations of the pandemic and the Job Function Email Database Russian invasion of Ukraine to be temporary. The concern was always that inflation would not fall to the 2 percent targets on its own and could become quite sticky on the way down. That is exactly what is happening and remains the concern. Even after the latest good data, the Fed's inflation forecasts for the end of this year, next year, and the year after that are unlikely to improve much. All the major mistakes have been underestimating the strength and persistence of inflation rather than overestimating it. You are viewing a snapshot of an interactive chart. This is most likely because you are offline or JavaScript is disabled in your browser. Despite the sharp drop in the headline rate, the US economy still appears to be performing well and the labor market has not yet returned to balance.
As members of the Federal Open Market Committee keenly observed at their last meeting, “nominal wages continued to rise at rates above levels assessed as consistent with sustained achievement of the committee's 2 percent inflation target.” If the United States has seen some encouraging trends without enough progress, Europe has not yet followed them. The European Central Bank had to raise its inflation forecasts in its latest predictions and core inflation measures have become sticky. And while UK statisticians may construct measures that show core inflation starting to fall, most data points still indicate an entrenched post-Brexit wage price spiral. The definitions of price stability do not include services inflation, which still stood at 7.4 percent in July, with annual wage growth of more than 8 percent. This is not the environment in which it makes sense for European central banks to declare victory over inflation. Central banks, of course, have become active inflation fighters over the past 18 months.