The average US price of regular gasoline this Christmas was
almost 20 cents a gallon lower than it was a year earlier. Prices at the pump
are still higher than they were during the pandemic slump, when economic
shutdowns depressed world oil prices, but the affordability of fuel — as
measured by the ratio of the average wage to gas prices — is most of the way
back to pre-COVID levels.
اضافة اعلان
Now, gas prices are not a good measure either of economic health
or of successful economic policy — although if you listened to Republican ads
during the midterms, you might have thought otherwise. But subsiding prices at
the pump are only one of many indicators that the inflationary storm of 2021 to
2022 is letting up. Remember the supply-chain crisis, with shipping rates
soaring to many times their normal level? It is over.
More broadly, recent reports on the inflation measures the
Federal Reserve traditionally uses to guide its interest rate policy have been
really, really good.
So is this going to be the winter of our diminishing discontent?
After the nasty shocks of the past two years, nobody wants to
get too excited by positive news. Having greatly underestimated past inflation
risks myself, I am working hard on curbing my enthusiasm, and the Fed, which is
worried about its credibility, is even more inclined to look for clouds in the
silver lining. And those clouds are there, as I will explain in a minute. It is
much too soon to declare all clear on the inflation front.
But there has been a big role reversal in the inflation debate.
Last year optimists like me were trying to explain away the bad news. Now
pessimists are trying to explain away the good news.
What is really striking about the improvement in inflation
numbers is that so far, at least, it has not followed the pessimists’ script.
Disinflation, many commentators insisted, would require a sustained period of
high unemployment — say, at least a 5 percent unemployment rate for five years.
And to be fair, this prediction could still be vindicated if recent progress
against inflation turns out to be a false dawn. However, inflation has declined
rapidly, even with unemployment still near record lows.
What explains falling inflation? It now looks as if much,
although not all, of the big inflation surge reflected one-time events
associated with the pandemic and its aftermath — which was what Team Transitory
(including me) claimed all along, except that transitory effects were both
bigger and longer lasting than any of us imagined.
First came those supply-chain issues. As consumers, fearing risks
of infection, avoided in-person services — such as dining out — and purchased
physical goods instead, the world faced a sudden shortage of shipping
containers, port capacity and more. Prices of many goods soared as the
logistics of globalization proved less robust and flexible than we realized.
Then came a surge in demand for housing, probably caused largely
by the pandemic-driven rise in remote work. The result was a spike in rental
rates. Since official statistics use market rents to estimate the overall cost
of shelter, and shelter, in turn, is a large part of measured inflation, this
sent inflation higher even as supply-chain problems eased.
But new data from the Cleveland Fed confirms what private firms
have been telling us for several months: Rapid rent increases for new tenants
have stopped, and rents may well be falling. Because most renters are on
one-year leases, official measures of housing costs — and overall inflation
numbers that fail to account for the lag — do not yet reflect this slowdown.
But housing has gone from a major driver of inflation to a stabilizing force.
Disinflation, many commentators insisted, would require a sustained period of high unemployment — say, at least a 5 percent unemployment rate for five years.
So why should we not be celebrating? You can pick over the
entrails of the inflation numbers looking for bad omens, but I am ever less
convinced that anybody, myself included, understands inflation well enough to
do this in a useful way. Basically, as you exclude more and more items from
your measure in search of “underlying” inflation, what you’re left with becomes
increasingly strange and unreliable.
Instead, my concern (and, I believe, the Fed’s) comes down to
the fact that the job market still looks very hot, with wages rising too fast
to be consistent with acceptably low inflation.
What I would point out, however, is that many workers’ salaries
are like apartment rents, in the sense that they get reset only once a year, so
official numbers on wages will lag a cooling market, and there is some evidence
that labor markets are, in fact, cooling. Official reports in January —
especially on job openings early in the month and on employment costs at the
end — may (or may not) give us more clarity on whether this cooling is real or
sufficient.
Oh, and with visible inflation slowing, the risks of a
wage-price spiral, which I never thought were very large, are receding even
further.
So, we have had some seriously encouraging inflation news. There
are still reasons to worry, and the news is not solid enough to justify
breaking out the Champagne. But given the season, I am going to indulge at
least in a glass or two of eggnog.
Read more Opinion and Analysis
Jordan News
.jpg)
.jpg)
