Thoughts about inflation. It should go without saying that we need to be cautious. Yesterday's good report came <2 weeks after a nasty negative shock on wages. Much too soon to celebrate 1/
That said, I find myself thinking about Dornbusch's Law — originally about currency crises: the crisis takes longer to arrive than you imagine, then happens faster than you imagine 2/
Maybe something similar on disinflation? Obv we don't know that, but past underprediction of inflation is no guarantee of future performance 3/
More substantively: many people trying to estimate "underlying" inflation. But less clarity about what that means, and this matters 4/
Standard macro says that inflation can be self-perpetuating — that is, persist even in the face of above-normal unemployment — if entrenched in expectations. But ... 5/
... one-year expectations elevated, but that's just lagged gas prices; medium-term not at all, and no sign future inflation seeping into price and wage setting 6/
Alternative notion of "underlying" is inflation caused by general excess demand rather than temporary disruptions. Wage data and most core measures show some of that 7/
But if inflation isn't entrenched — and probably won't be, given low headline rates — isn't it likely that cooling demand will bring inflation down fast? 8/
@pkrugman While I appreciate your insights, the weird chopped-up posts are annoying to read. I'm assuming that it's because you're cross-posting from Twitter. Could you perhaps find a solution where they come across as one continuous post?
I'm muting your account & I'll probably check back later, but wanted to mention this. It might limit the size of your following by Mastodon & other Fediverse users.
