Since the middle of 2020, the annual inflation rate has been rising.
While the consumer price index (CPI) has likely peaked at 9.1 percent, it remains elevated.
The Federal Reserve Bank of Cleveland forecasts that the November CPI will come in at 7.5 percent, down from 7.7 percent in October.
So, does this mean “transitory inflation” is back on the table?
Yes, says CNBC, although transitory was even ditched by Jerome Powell and Janet Yellen last year.
Here is what the business news network reported:
Global markets have taken heart in recent weeks from data indicating that inflation may have peaked, but economists warn against the return of the “transitory” inflation narrative.
Stocks bounced when October’s U.S. consumer price index came in below expectations earlier this month, as investors began to bet on an easing of the Federal Reserve’s aggressive interest rate hikes.
While most economists expect a significant general decline in headline inflation rates in 2023, many are doubtful that this will herald a fundamental disinflationary trend.
Paul Hollingsworth, chief European economist at BNP Paribas, warned investors on Monday to beware the return of “Team Transitory,” a reference to the school of thought that projected rising inflation rates at the start of the year would be fleeting.
The Fed itself was a proponent of this view, and Chairman Jerome Powell eventually issued a mea culpa accepting that the central bank had misread the situation.
“Reviving the ‘transitory’ inflation narrative might seem tempting, but underlying inflation is likely to remain elevated by past standards,” Hollingsworth said in a research note, adding that upside risks to the headline rate next year are still present, including a potential recovery in China.
…
Some significant price increases during the Covid-19 pandemic were widely considered not to actually be “inflation,” but a result of relative shifts reflecting specific supply and demand imbalances, and BNP Paribas believes the same is true in reverse.
As such, disinflation or outright deflation in some areas of the economy should not be taken as indicators of a return to the old inflation regime, Hollingsworth urged.
What’s more, he suggested that companies may be slower to adjust prices downward than they were to increase them, given the effect of surging costs on margins over the past 18 months.
Although goods inflation will likely slow, BNP Paribas sees services inflation as stickier in part due to underlying wage pressures.
So, even in the article itself, CNBC uses sources to reject this narrative.
But it’s not surprising. Minneapolis Fed Bank President Neel Kashkari suggested this past summer that inflation could still be transitory.
Huh?
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