Economics & Growth | Monetary Policy & Inflation
Inflation and Its Troubled History
- By Sam van de Schootbrugge
- 7 min read
Summary
- A new NBER working paper documents the dynamics of inflation, inflation expectations and other key macroeconomic variables after inflation surges.
- It finds 112 previous episodes like today’s, and, on average, inflation takes two years from its peak to halve and a further four years to normalise fully.
- Typically, inflation surges precede long-term changes in inflation expectations, rises in interest rates, lower growth, and higher unemployment.
- For the US, the results imply headline CPI will remain above 4% until Q2 2024 and that the Fed is behind the curve from a historical perspective.
Introduction
Inflation is here – and back with a vengeance. Sadly, it also appears to have a begrudging character. How long it can resist the Whac-A-Mole approach of central banks and governments, though, is yet to be determined. A look back at past inflation surges may give us the answer.
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