Think You Can Predict Inflation? Think Again

- Advertisement -


The scope for error in forecasting US inflation is huge, even if you think you know how the pandemic will progress

- Advertisement -

Food and energy prices have been pushed up by supply problems and demand changes brought on by the pandemic, but so are many other things. The combination of a global semiconductor shortage and the need for many to get a new set of wheels has led to a shortage of vehicles on dealer lots. The result: prices for new cars rose 8.7% in September compared to a year earlier, and prices for used cars rose 24.4%.

- Advertisement -

Other examples: Major-equipment prices increased 9.6% year over year, furniture prices increased by 11.2%, and sporting goods prices increased by 7.5%.

Then there are things with prices that have risen sharply from a year ago, but only because they crashed in the early stages of the pandemic. For example, accommodation prices in hotels and similar hotels were up 19.8%, but up just 1.9% from two years ago.

- Advertisement -

It is easy to envision a scenario in which inflation will moderate substantially in the coming year. Covid-19 cases drop globally, supply-chain problems go away, it’s easier to meet demand and, poof, prices stop rising that much. That’s a reasonable scenario, and what the Federal Reserve and most economists expect.

The important thing is that it hasn’t surfaced yet, even though it should have been by now. The delta version has something to do with it – the sharp rise in Covid-19 cases led to unexpected production and shipping snares in places like Vietnam. The pandemic will someday end, as did previous pandemics, but predicting that the world will truly be free from it is a mug game. Also, figuring out what the post-pandemic economy will look like, and how it will affect prices, requires a lot of guesswork.

For now, the pandemic is here, and so is inflation. Policy makers and investors alike need to proceed based on what they think, but the opportunities for error are enormous.

.

- Advertisement -

Stay on top - Get the daily news in your inbox

DMCA / Correction Notice

Recent Articles

Related Stories

Stay on top - Get the daily news in your inbox