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It's debated whether current inflation is predominantly caused by supply-chain issues in the first place, so assuming that as the base case isn't stable ground.

It's debated whether current inflation is predominantly caused by supply-chain issues in the first place, so assuming that as the base case isn't stable ground. But let's not focus on the cause of our predicament for a moment. Here's a chart of the Consumer Price Index: https://fred.stlouisfed.org/series/CPIAUCSL https://fred.stlouisfed.org/series/CPIAUCSL Rolling 12 month average % changes to CPI is what's reported by the media when talking about inflation, such as "a 7% increase to inflation". Notice how CPI rarely ever goes down. This is by design. In fact, deflation is usually worse for everyone versus inflation. Nobody wants big swings of either, so it's typical for central banks such as the Federal Reserve to control either direction, and they usually hedge on the side of inflation as their target. So that's why I said it's a very unlikely event to have deflation.

roughly 5y ago
> But let's not focus on the cause of our predicament for a moment That’s my point, though - if we’re not focusing on the Cause of the predicament, we’re extremely unlikely to be able to handle it correctly. > they usually hedge on the side of inflation as their target. So that's why I said it's a very unlikely event to have deflation Yes, but, again, this is not a normal inflationary event. I agree that there are other factors affecting the situation, but the supply chain issues are clearly a substantial component, even if they’re only debatably the predominant factor. That component is being influenced from outside normal monetary policy and can clearly shift pretty quickly. Given that, the dangers of deflationary pressure, and the frankly appallingly shallow general understanding and zeitgeist around inflation, I’ll say again that I think it’s worth keeping in clear view the degree to which the current situation is being driven by factors outside the traditional monetary model, lest we decide to do something rash that we later find was stupid in the middle of what’s still actually a pandemic and not a normal business cycle.

roughly 5y ago

> But let's not focus on the cause of our predicament for a moment That’s my point, though - if we’re not focusing on the Cause of the predicament, we’re extremely unlikely to be able to handle it correctly. > they usually hedge on the side of inflation as their target. So that's why I said it's a very unlikely event to have deflation Yes, but, again, this is not a normal inflationary event. I agree that there are other factors affecting the situation, but the supply chain issues are clearly a substantial component, even if they’re only debatably the predominant factor. That component is being influenced from outside normal monetary policy and can clearly shift pretty quickly. Given that, the dangers of deflationary pressure, and the frankly appallingly shallow general understanding and zeitgeist around inflation, I’ll say again that I think it’s worth keeping in clear view the degree to which the current situation is being driven by factors outside the traditional monetary model, lest we decide to do something rash that we later find was stupid in the middle of what’s still actually a pandemic and not a normal business cycle.