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| Version 4 | Version 5 |
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| Which Inflation Measures Matter? | Which Inflation Measures Matter? |
| (5 days later) | |
| Stop me if you’ve heard this before: In a few days, we’re going to get a couple of important inflation reports, and they might bring some clarity to the debate over whether we can have a soft landing — that is, getting inflation down without a recession. | Stop me if you’ve heard this before: In a few days, we’re going to get a couple of important inflation reports, and they might bring some clarity to the debate over whether we can have a soft landing — that is, getting inflation down without a recession. |
| Of course, if you have been following this discussion, you have indeed heard this before. Clarity in the inflation discussion has been very hard to come by, even if you ignore the people filling my inbox with declarations that the dollar is doomed and that hyperinflation is just around the corner. I’ve compared debates among economists over each new trove of inflation data to ancient Roman priests seeking auguries in the entrails of sacrificed animals, a remark that, oddly, doesn’t seem to have won me many friends among my colleagues. | Of course, if you have been following this discussion, you have indeed heard this before. Clarity in the inflation discussion has been very hard to come by, even if you ignore the people filling my inbox with declarations that the dollar is doomed and that hyperinflation is just around the corner. I’ve compared debates among economists over each new trove of inflation data to ancient Roman priests seeking auguries in the entrails of sacrificed animals, a remark that, oddly, doesn’t seem to have won me many friends among my colleagues. |
| It’s also disturbing that many economists always seem to come down on the same side of these debates: Optimists are always optimistic, pessimists always pessimistic. I’ve surely been guilty of the same thing. | It’s also disturbing that many economists always seem to come down on the same side of these debates: Optimists are always optimistic, pessimists always pessimistic. I’ve surely been guilty of the same thing. |
| So I thought I’d devote today’s newsletter to a probably doomed attempt to bring some clarity to this discussion. And to be honest, I’m also trying to preregister my view on how to look at the coming data, especially the Employment Cost Index data that will be released Friday, so that I can’t be accused of picking and choosing which numbers to emphasize after the fact. | So I thought I’d devote today’s newsletter to a probably doomed attempt to bring some clarity to this discussion. And to be honest, I’m also trying to preregister my view on how to look at the coming data, especially the Employment Cost Index data that will be released Friday, so that I can’t be accused of picking and choosing which numbers to emphasize after the fact. |
| One thing all serious participants in these discussions agree on is that you can’t look at just the raw inflation numbers, which bounce around a lot in response to unpredictable, short-term events. Instead, you want some measure of underlying inflation. Remarkably, however, many economists throw the term around without defining what “underlying” means. | |
| What I think we think it means is that there’s a lot of inertia in some, but not all, prices. Many prices are sticky in the sense that companies don’t change their prices every day or even every month; almost nobody changes wages on a frequent basis, for example. Instead, companies change prices or wages at intervals — say, once a year. |