I’ve seen a lot of threads with people arguing about whether the inflation we’re seeing is transient (caused by supply chain issues) or permanent (caused by growth in the money supply). If transient inflation is the best case scenario, we should understand what that means.
Inflation can be transitory in absolute terms or rate of change terms. In the absolute case, prices would briefly spike and then come back down to the same level that they were before. In the rate of change case, prices would briefly spike and then stop increasing, but stay at that higher level in the long term.
Historically, inflation has almost always been transient in rate of change terms. So when you hear Powell telling you not to worry because inflation is transitory - just know that means that prices will stop going up soon, but they will remain at elevated levels.
Of course there are extreme supply chain cases such as lumber where prices will come back down, but these cases are the exception, not the rule. Generally across the board, the inflation that we see will be caused by an expansion in the money supply.
For a breakdown of historical transient inflation, see this article: https://www.lynalden.com/inflation/#transitory
Submitted June 16, 2021 at 08:37AM by the_winds_of_shit_ https://ift.tt/3xotBY2
