125 posts on "Inflation"
September 7, 2023
How Large Are Inflation Revisions? The Difficulty of Monitoring Prices in Real Time
With prices quickly going up after the COVID-19 pandemic, inflation releases have rarely been as present in the public debate as in recent years. However, since inflation estimates are frequently revised, how precise are the real-time data releases? In this Liberty Street Economics post, we investigate the size and nature of revisions to inflation. We find that inflation estimates for a given month can change substantially as subsequent data vintages are released. As an example, consider March 2009. With the economy contracting amid the Global Financial Crisis, the twelve-month inflation rate for personal consumption expenditures (PCE) excluding food and energy dropped from an initial estimate of 1.8 percent to 0.8 percent in the current series. The difference is dramatic and points to the difficulty of monitoring inflation in real time. Our results suggest that there is significant uncertainty in measuring inflation, and the key features of the recent spike and subsequent moderation of inflation may look quite different in hindsight once further revisions have taken place.
August 17, 2023
Consumers’ Perspectives on the Recent Movements in Inflation
Editors Note: The title of this post has been changed from the original. August 17, 2023, 10:35 a.m.
Inflation in the U.S. has experienced unusually large movements in the last few years, starting with a steep rise between the spring of 2021 and June 2022, followed by a relatively rapid decline over the past twelve months. This marks a stark departure from an extended period of low and stable inflation. Economists and policymakers have expressed differing views about which factors contributed to these large movements (as reported in the media here, here, here, and here), leading to fierce debates in policy circles, academic journals, and the press. We know little, however, about the consumer’s perspective on what caused these sudden movements in inflation. In this post, we explore this question using a special module of the Federal Reserve Bank of New York’s Survey of Consumer Expectations (SCE) in which consumers were asked what they think contributed to the recent movements in inflation. We find that consumers think supply-side issues were the most important factor behind the 2021-22 inflation surge, while they regard Federal Reserve policies as the most important factor behind the recent and expected future decline in inflation.
July 13, 2023
Inflating Away the Debt: The Debt-Inflation Channel of German Hyperinflation
The recent rise in price pressures around the world has reignited interest in understanding how inflation transmits to the real economy. Economists have long recognized that unexpected surges of inflation can redistribute wealth from creditors to debtors when debt contracts are written in nominal terms (see, for example, Fisher 1933). If debtors are financially constrained, this redistribution can affect real economic activity by relaxing financing constraints. This mechanism, which we call the debt-inflation channel, is well understood theoretically (for example, Gomes, Jermann, and Schmid 2016), but there is limited empirical evidence to substantiate it. In this post, we discuss new insights from one of the key events in monetary history: the Great German Inflation of 1919-23. Because this case of inflation was both surprising and extremely high, Germany’s experience helps shed light on how high inflation impacts firms’ economic activity through the erosion of their nominal debt burdens. These insights are based on a recently released research paper.
July 6, 2023
Where Is Inflation Persistence Coming From?
Elevated inflation continues to be a top-of-mind preoccupation for households, businesses, and policymakers. Why has the post-pandemic inflation proved so persistent? In a Liberty Street Economics post early in 2022, we introduced a measure designed to dissect the buildup of the inflationary pressures that emerged in mid-2021 and to understand where the sources of its persistence are. This measure, that we labeled Multivariate Core Trend (MCT) inflation analyzes whether inflation is short-lived or persistent, and whether it is concentrated in particular economic sectors or broad-based.
The EGIs: Analyzing the Economy Through an Equitable Growth Lens
Inflation remains elevated, labor markets are close to the strongest they have been, real consumption is up year-over year, but all of these observations are with respect to averages. Behind these macroeconomic trends can be widely varying experiences across different demographic and socioeconomic groups that make up our society. To provide researchers, practitioners, and the public with timely, regularly updated and comprehensive answers to these questions, we launched the Equitable Growth Indicators (EGIs)—a new tool to help foster the evolving discussion about economic inequality and equitable growth. To illustrate the utility of the EGIs, we provide examples of some striking differences in trends captured in the May release of the EGIs on inflation, real earnings, and real spending. More heterogeneity analysis and data are available at nyfed.org/egi.
June 23, 2023
The Credibility of Government Policies: Conference in Honor of Guillermo Calvo
Guillermo Calvo is a leading member of a group of economists who revolutionized macroeconomics by modeling how incentives and the anticipation of future policies affect aggregate outcomes. In celebration of his work, a conference was held in his honor at the Federal Reserve Bank of New York and at Columbia University on February 22-24, 2023. The conference program can be found on the event website. A longer version of this post with additional detail on the proceedings can be found here.
June 22, 2023
Elevated Rent Expectations Continue to Pressure Low-Income Households
The Federal Reserve Bank of New York’s 2023 SCE Housing Survey, released in April, reported some novel data about expectations for home prices, interest rates, and mortgage refinancing. While the data showed a sharp drop in home price expectations, some of the most notable findings concern renters. In this post, we take a deeper dive into how renters’ expectations and financial situations have evolved over the past year. We find that both owners and renters expect rents to rise rapidly over the next year, albeit at a slower pace than last year. Furthermore, we also show that eviction expectations rose sharply over the past twelve months, and that this increase was most pronounced for those in the lowest quartile of the income distribution.
June 2, 2023
How Do Firms Adjust Prices in a High Inflation Environment?
How do firms set prices? What factors do they consider, and to what extent are cost increases passed through to prices? While these are important questions in general, they become even more salient during periods of high inflation. In this blog post, we highlight preliminary results from ongoing research on firms’ price-setting behavior, a joint project between researchers at the Federal Reserve Banks of Atlanta, Cleveland, and New York. We use a combination of open-ended interviews and a quantitative survey in our analysis. Firms reported that the strength of demand was the most important factor affecting pricing decisions in recent years, while labor costs and maintaining steady profit margins were also highly important. Using three methodological approaches, we consistently estimate a rate of cost-price passthrough in the range of 60 percent for the representative firm over 2022-23—with considerable heterogeneity in this number across firms.
MCT Update: Inflation Persistence Declined Significantly in April
This post presents an updated estimate of inflation persistence, following the release of personal consumption expenditure (PCE) price data for April 2023. The estimates are obtained by the Multivariate Core Trend (MCT), a model we introduced on Liberty Street Economics last year and covered most recently in a May post. The MCT is a dynamic factor model estimated on monthly data for the seventeen major sectors of the PCE price index. It decomposes each sector’s inflation as the sum of a common trend, a sector-specific trend, a common transitory shock, and a sector-specific transitory shock. The trend in PCE inflation is constructed as the sum of the common and the sector-specific trends weighted by the expenditure shares.
May 23, 2023
Financial Stability and Interest Rates
In a recent research paper we argue that interest rates have very different consequences for current versus future financial stability. In the short run, lower real rates mean higher asset prices and hence higher net worth for financial institutions. In the long run, lower real rates lead intermediaries to shift their portfolios toward risky assets, making them more vulnerable over time. In this post, we use a model to highlight the challenging trade-offs faced by policymakers in setting interest rates.
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