Ecoinometrics - How fast is inflation coming down?
Inflation is moving lower, but is it really worth celebrating yet?
If all you care about is that the inflation number goes down then you can stop reading here.
For everyone else understanding the how and the why behind the inflation dynamics is important to decide where we are in this macro cycle.
So let’s go past the numbers and figure what’s really going on.
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How fast is inflation coming down?
This is a topic we have been covering for two years already: inflation, how it affects monetary policies and what are the consequences for your portfolio.
First we went through the post-COVID phase of worrying about a spike in inflation as a consequence of the amount of liquidity the Federal Reserve and the US Treasury were injecting in the system.
Then once inflation arrived we spent our time explaining why in all likelihood it was not going to be as temporary as the Fed would like to think.
And since then we have been debating whether or not inflation has peaked.
Now that we have seen three consecutive months of lower inflation we can confidently say that inflation is on a downtrend.
Some of the same people who told you inflation was transitory™ are now bragging about how fast inflation is coming down and how good of a job the Federal Reserve is doing:
Lower inflation.
Unemployment not rising.
No recession.
And the only cost we had to pay is a correction in some overheated financial assets.
Yada yada yada…
Alright, but is such a large amount of optimism warranted?
First of all inflation is heading lower. But it is not heading lower at a very impressive rate to be honest.
Here is a simulation of how inflation could come down from its current top based on similar situations from the past 80 years.
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