On today’s show we are talking about the difference between two types of inflation. Economists have terminology for inflation that is used to describe the nature of the inflation.
The first is cyclical inflation. This type of inflation is caused by a short term economic disruption, for example a supply shock. Once that supply shortage is resolved, prices tend to normalize and the inflation essentially disappears. Some economists use the term transitory to describe a cyclical inflation.
The second type of inflation is called secular. This is a deeper and more systemic type of inflation that tends to persist because it is being driven by multiple factors including the so-called wage price spiral.
Once you have secular inflation, it is much more difficult to eliminate from the economy.
It appears as though we have a cyclical inflation happening right now. The supply shock that occurred during the pandemic has subsided. Inventories are bloated and prices are falling as suppliers compete more aggressively for customer’s business.
Secular inflation is when inflation expectations become anchored. The factors influencing inflation become systemic and entrenched.
On today’s show I’m going to make a case that even though we are in a disinflationary period, and parts of the world are experiencing deflation, the disinflation we are experiencing is a result of a cyclical downturn against the backdrop of a longer secular cycle.
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Host: Victor Menasce
email: [email protected]
