Inflation

With consumer prices rising at the fastest pace for three decades, we asked PhD students on their views on the risks prolonged higher inflation as a result of the current stance of fiscal and monetary policy, as well as the likely impact of an easing of supply bottlenecks.

Summary

Compared to the macroeconomist survey, more PhD students disagreed (30%) than the macroeconomist panel (12%) with the first question that supply bottlenecks can be abated without significant impact on inflation. Similar pattern was found for Question B, for which 30% of PhD respondents disagreed while only 9% of the macroeconomist panel disagreed.

Question A

“The supply bottlenecks that are currently contributing to rising prices can be reasonably expected to abate without causing inflation over the longer term to be above the Fed’s target.”

Select Explanations

• If inflation begins to spiral (or looks like it will), the Fed will likely contract (or more likely signal contracting) to the degree that inflation is tamed.
• Much harder for many sectors to drop prices once they’ve raised them, often are probably keeping prices under what would be their optimal due to various dynamics like menu costs and behavioral components. Once they change is made in certain sectors it’s probably here to stay.

Question B

“The current combination of US fiscal and monetary policy poses a serious risk of prolonged higher inflation.”

Select Explanations

• While fiscal policy is not particularly strategic with regards to inflation (it may be considered “active”), monetary policy is hyper-aware of inflation risk, and has more tools than ever to address inflation (and they are likely “passive” at the moment).