I’m So Tired of the Transitory Inflation “Debate”

In Epsilon Theory notes, we use a lot of images of politicians and bankers shaking their fingers at
You have reached the maximum number of free, long-form articles for the month.

Please join here to read the rest of this content.

Paid Members can log in here.

To learn more about Epsilon Theory and be notified when we release new content sign up here. You’ll receive an email every week and your information will never be shared with anyone else.

Comments

  1. Great article. I think one of the most interesting points (which you allude to in your discussion of 2015/16 PCE) is why these debates don’t materialise when the shoe is on the other foot. In early 2020 we had just 3 months of negative mom CPI but there was no debate about whether this effect may be transitory and related to the temporary suspension of huge swathes of the economy.

  2. “The bank is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.” ~ John Steinbeck, ‘The Grapes of Wrath’

  3. The FED is omnipotent if you do not believe me just ask Jim Cramer.
    There is a little sushi bowl place around the corner from my office I hit it once a week for lunch - my sushi bowl and a water (same exact bowl every time) $12 bucks for the last few years, last month I was taken back when it was $15 , yesterday $17 !
    The Spaghetti Factory (I really need to quit eating pasta for lunch) I almost went into a carb coma Monday when I ate there. Anyway , no more lunch menu - so my $8 dollar lunch is now $15. Is the portion bigger? Maybe… its hard to tell.
    Fiat news is one of my favorite notes of all time , and I think Ben is correct to adjust that to a fiat world!
    I do see signs that people are realizing how much misinformation they are being fed.
    I have many retail clients and the majority now openly joke with me about fiat CPI numbers - this is new.

  4. Edit the FED is also omniscient.

  5. That Arthur Burns was a comical genius!

    That aside, thanks for introducing me to the concept of inflation being a “rolling series of shocks through one goods/service category after another.” I’ve not come across that explanation before and it completely reframes the current inflation debate for me! Thanks Ben.

  6. This conversation has been readily occurring at my place of employment. Most indicate it is all statistical because values were suppressed in 2020. My positioning is to stop framing the argument as “either/or”. We can have a statistical anomaly due to the lower inflation levels in 2020 as we “revert”, AND we can have actual inflation in the price companies and individuals pay for the things which much be purchased. I find it usually ends with me asking a question if they think the price they pay for groceries/education/insurance/housing has only meaningfully increased in recent months and do they expect those prices to meaningfully decline in the upcoming months/year.

  7. I appreciate much how you frame our receipt of the language from on high. I propose a simplistic language response to the tautology: PCE excludes the “volatile” components of food and energy. What else do we live on, besides food and energy?

  8. Yr/yr oil price comps through yr end are almost triple digits. Rent comps are going to be double digit through next spring as well.

  9. Avatar for Joel Joel says:

    The Fed can do QE to any extent they deem reasonable. QE supports ALL assets - stocks, bond prices, real estate, and even collectibles like Bitcoin. However, the Fed cannot manipulate the markets forever. When the data on inflation becomes so apparent and so persistent that Powell is embarrassed into stopping QE then the bond vigilantes will have a less expensive proposition to enforce the free market price discovery of interest rates. At this point, Powell can keep the short-end at zero as long as he wants and create whatever false narrative necessary but he will be too embarrassed to do QE. So at some point, the markets - not the Fed - will run monetary policy. Until the GFC and the crossing of the Rubicon with QE, markets forced the Fed. What QE does is to suspend free markets. Congress controls the purse. QE should be removed from the Fed’s unilateral hands.

  10. From a family member who works at a large, rural resort - We can’t find cleaners because normally all those jobs are filled with summer temps from overseas. So the local cleaners’ pay was raised to $25/hour. Then the front desk people heard about it and were, like, wait what? I should get paid more than a cleaner (most have degrees). So they got bumped…but then some of them were starting to approach the pay of managers. Etc, etc. All this happened in last few months. Maybe the lack of temp cleaners is indeed transitory to some extent but the wage increases they triggered won’t be rolled back.

  11. Well…thanks to you I went out and looked at the Shadowstats inflation numbers. 9% is the least bad calculation. Now I hope I can afford the aspirin.

  12. Inflation will come and go, never shall prices rise.

    Inflation will come and go never, shall prices rise.

    Just omit the comma in the transcript and then ex post facto profess your ‘vision’. 

  13. time dependent supply chain shocks

  14. As usual a lot of words but no conclusion…

Continue the discussion at the Epsilon Theory Forum

Participants

The Latest From Epsilon Theory

DISCLOSURES

This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.

Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.