The battle between inflation hawks and doves is heating up. The year-over-year change in the Consumer Price Index is 5.4%, significantly above average. This figure, from the end of July, comes after several months of economy-wide price hikes. But does this portend high inflation for the foreseeable future? Or will inflation come back down soon? Furthermore, what’s at stake in this debate?
At National Review’s Capital Matters page, Ramesh Ponnuru helpfully breaks down the differences between #TeamEndemic and #TeamTransitory. Like Ramesh, I’m #TeamTransitory. As supply-side bottlenecks continue to ease, production will pick up and prices will slow their rate of increase. The Fed is increasingly signaling that it will taper off its asset purchases, which complements supply-side disinflationary forces with demand-side disinflationary policy. Market forecasts of inflation years into the future also predict inflation falling back to levels closer to the historical average.