“Transitory” inflation is back, baby, almost a year after Federal Reserve chair Jay Powell supposedly buried the word for good.
Readers will remember that Powell was fond of the phrase for much of 2021, when rising energy costs, supply chain bottlenecks and the shift in consumption from services to goods really began to push up prices.
It was only in November, once philosopher king US senator Pat Toomey had pointed out how, in reality, “everything is transitory — life is transitory” that Powell said he would try to “explain more clearly” what he meant. Inflation — at 6.2 per cent at the time — was officially transitory no more.
History became legend, legend became myth, and for most of the year the word passed out of all use. Until, that is, October’s surprisingly chill consumer price figures landed early on Thursday. Here’s JPMorgan opining on the data as if the past 12 months (and boss Jamie Dimon’s hawkish April letter to shareholders) were all just a bad dream (emphasis our own):
The October consumer price index (CPI) was softer than expectations. The headline index increased 0.4%, with energy prices increasing 1.8%, food prices rising 0.6%, and a 0.3% gain for the core (0.272% to three decimals). These monthly figures were not particularly soft by pre-pandemic standards, and year-ago inflation rates remained strong in October (headline at 7.7% oya, core at 6.3% oya) even if they have cooled somewhat relative to recent earlier figures. But, overall, the October report supports the idea that we are moving past the firmest period for inflation and that a decent amount of the inflation we have seen over the past year will prove to be temporary or transitory in nature.
That’s a bold call.
Labour markets are as tight as ever, money is still pretty cheap and energy prices remain sky high. Even so, economist Brad DeLong writes that Team Transitory would be looking “pretty good right now” were it not for Russia’s invasion of Ukraine:
The arguments against the way macro economic policy has been conducted since January 2021 hinge on claims policymakers should’ve expected, or at least acted as though they expected, Vladimir Putin.
Of course, saying that policy was reasonably conducted in 2021 does not help us right now. But it is important to register that we have a Putin inflation problem, not a miss managed-recovery inflation problem.
Putin or no Putin, perhaps 2021 Powell was right all along. November’s CPI will provide more clues.
Source: Economy - ft.com
