Thread by @OphirGottlieb

Quick thread on inflation

1. What the Fed can deal with
2. What the Fed cannot deal with
3. Size of each

Here we go.

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Stuff impacting inflation h/t @LizAnnSonders

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The excess demand side inflation from that chart

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The part is 'normal' demand side inflation (outlined in green).

The 'excessive of normal' demand-side inflation (the part above the green)

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Just the 'excessive of normal' demand-side inflation (the part above the green)

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Same exercise from the excess inflation from supply side

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Comparing the duration and size of excess inflation from demand (blue) and supply (green)

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My conclusion:

Excess demand side inflation been more persistent; Excess supply side inflation has been larger.

The Fed can't do much about the excess supply-side inflation which is larger part, but there is still plenty of excess demand-side inflation for the Fed to tame

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Onto oil, which the Fed has little control over, but still worth looking at bc it has been the number one contributor to headline CPI.

Start with a simple chart of Oil Prices (a bit dated)

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Two portions of inflation here.

One before the war, which was substantial, and the part after, which is also substantial.

Focusing on the increases:

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Side-by-side comparison of pre-war inflation and post-war inflation.

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And now both together with a conclusion:

* There is a lot of excess demand-side inflation that the Fed can address. So, good, do that.

* Most of the inflation the Fed cannot address (supply-side and energy) and that's bad.

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* I don’t see a reason to be excessively bullish in the immediate-term

* I do see a reason to be quite bullish with a longer-term view

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