One use of Twitter: to post background information that I may use in columns and newsletters. So, a bit about market expectations of inflation. Right now, the yield on one-year inflation-protected Treasuries is -3.2% 1/…
The one-year rate on ordinary Treasuries is 0.48%. So implied expected inflation for the next year is about 3.7% (which may be a bit low, but the accuracy isn't my current point) 2/…
If we look at expected 5-year inflation, it's a lot lower — about 2.8% 3/
If you do the arithmetic, this says that the bond market is expecting only about 2.3% inflation after this year. Why does this matter? Not because the bond market is necessarily right, but because the big concern right now is that inflation will get embedded via expectations 4/
The bond market offers some indication that the private sector doesn't expect inflation to persist. True, bond traders don't set real-economy prices and wages. But they may offer some evidence on whether a wage-price spiral is likely 5/
Other surveys, for example, of planned compensation also show no sign of a spiral; nor is there any indication of expectation-driven price or wage increases in the Fed's latest Beige Book 6/…
Again, inflation will be high for quite a while. But the important question now is whether we're headed for stagflation, and that's all about expectations and whether they get entrenched; so far, no 7/

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More from @paulkrugman

15 Jan
As inflation persists, progressive politicians and the Biden administration have been condemning corporations for abusing their market power to raise prices — leading to a barrage of criticism from center-left economists and commentators. And I'm puzzled about the vehemence 1/
Let's stipulate two things. 1. Monopoly is a real issue and problem in the US economy. 2. It is not, however, a major reason for the acceleration of inflation in 2021, nor can a crackdown on monopoly do a lot to bring inflation down. But what does that tell us? 2/
It would be cause for alarm if the Biden administration were planning to use attacks on corporate greed as its principal inflation-fighting strategy, or proposing to act irresponsibly. But it isn't 3/
Read 6 tweets
9 Jan
One thing I should have made clearer in the last newsletter is that there's a large chance that annual and, say, quarterly inflation will be telling very different stories by late this year 1/…
Suppose, for example, that core inflation Dec/Dec is 4+% while 4thQ average is 2.5% — which could happen simply because cost of shelter, which is 1/3 of the CPI and is more or less the average rent actually paid, spends most of the year catching up to new-residence rents 2/
In that case you could have headlines shrieking "eek! inflation" while the right read should be that the Fed has successfully engineered a soft landing. 3/
Read 5 tweets
7 Jan
But I didn't miss this point — it was actually the main motivator for the analysis, just too hard to lay out explicitly in a general-public column 2/
The thought process that led me to this column began with my recalling James Tobin's underappreciated 1972 analysis of the role of nonlinearity in producing inflationary bias 3/
Read 5 tweets
5 Jan
Like many numbers types, I tend to obsessively follow the Covid data. One big story, which will probably get more coverage soon, is FL's rapid rise in the dismal rankings 1/
These are 7-day averages, which are a lagging indicator during a surge; also, FL does only about half as much testing as NY. So the outbreak in FL is probably already worse than NY's 2/…
The political relevance is obvious. Just a month or so ago, FL officials were boasting about their low case rate (never mind all those deaths earlier in 2021). Just days ago they were sneering at how NY, with all those restrictions, was leading the nation in cases 3/
Read 8 tweets
2 Jan
Obviously this is a subjective take (which is fine!) but there are multiple reasons now to believe that reports of NYC's death were greatly exaggerated — and that's part of a larger story 1/…
Until Covid came along we were looking at a clear — and in some ways troubling — bifurcation of US economic geography. A knowledge economy "wanted" to concentrate in large, highly educated metros, leaving much of the heartland stranded 2/
Then came the virus, and for a little while people thought "density=death", and hence that the trend would reverse — although even then such movement as took place was largely to suburbs and exurbs of the big metros 3/
Read 9 tweets
1 Jan
Do you share my sense of dread about the year ahead? If not, why not? 1/
At this point I'm not personally all that afraid of Covid. I do know vaxxed/boosted people who've had breakthrough cases, but both anecdotes and the available data say that these cases are usually mild. For those acting responsibly, we're down to normal-risks-of-life levels 2/
Longer term I'm terrified of climate change. But at this point that fear has been overtaken by the near-term risk of political catastrophe right here in America 3/
Read 7 tweets

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