A large part of actual inflation is from expected inflation. There is a reason why Yellen, initially, tried labeling inflation as transitory (to influence these).
Because once inflation expectations get baked in, consumers and businesses act on this, which can push prices even higher.
The Fed of San Fran has several good pieces on this.
Inflation is only transitory if everyone acts like it will be, which is hard to do when repeated shocks keep happening in the market.
It’s almost like there was a logic and a reason for policy makers to approach things with a steady, consistent hand.
Pseudanonymius on
Inflation is essentially the question of how much money is worth. Most probably know how it’s calculated, with a basket of goods. I’ve been sitting with a theory for a while. I think inflation is extremely underestimated. What should happen is that a bit of an index fund of the SP500 should be added to the basket. There has been an extreme amount of inflation for many many years, in just the stock market. So much money has been pumped into it, but since it never started circulating in the wider economy, it has never been included in the inflation numbers. However, it will lead to massive problems when the discrepancy between the value of money in the stockmarket and the value of money outside of it has to reconcile.
I really fear inflation is going to get a hell of a lot worse. If this oil shock, or anything else, leads to a recession, it could lead to people withdrawing from their 401k’s, or simply stop adding passive investments, which would introduce a massive flow of “new money” into the wider economy, leading to a huge recession with massive inflation because of all the new money circulating. And this is all without taking into account the current administration or an oil crisis.
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A large part of actual inflation is from expected inflation. There is a reason why Yellen, initially, tried labeling inflation as transitory (to influence these).
Because once inflation expectations get baked in, consumers and businesses act on this, which can push prices even higher.
The Fed of San Fran has several good pieces on this.
https://www.frbsf.org/topics/inflation-expectations/
Inflation is only transitory if everyone acts like it will be, which is hard to do when repeated shocks keep happening in the market.
It’s almost like there was a logic and a reason for policy makers to approach things with a steady, consistent hand.
Inflation is essentially the question of how much money is worth. Most probably know how it’s calculated, with a basket of goods. I’ve been sitting with a theory for a while. I think inflation is extremely underestimated. What should happen is that a bit of an index fund of the SP500 should be added to the basket. There has been an extreme amount of inflation for many many years, in just the stock market. So much money has been pumped into it, but since it never started circulating in the wider economy, it has never been included in the inflation numbers. However, it will lead to massive problems when the discrepancy between the value of money in the stockmarket and the value of money outside of it has to reconcile.
I really fear inflation is going to get a hell of a lot worse. If this oil shock, or anything else, leads to a recession, it could lead to people withdrawing from their 401k’s, or simply stop adding passive investments, which would introduce a massive flow of “new money” into the wider economy, leading to a huge recession with massive inflation because of all the new money circulating. And this is all without taking into account the current administration or an oil crisis.