I am disappointed by the tendentious & selective analysis of team transitory acolytes who keep finding new arguments for their conclusion that inflation is @ to subside & policy should be dovish. I focus on @paulkrugman because he is so clear & smart. 1/N nytimes.com/2022/10/14/opi…
.@paulkrugman now focuses on housing and the well-known point that government indices lag private sector indices of newly leased residences. Therefore, he argues one should not worry about projected high inflation rates because they are driven by housing. 2/N
.@paulkrugman would be more convincing if he had focused on the housing distortion when it was holding overall inflation down in 2021. He would be more credible if he acknowledged that new rental price inflation of his cited measure (Zillow) is still running at 6 percent. 3/N
He would also be more credible if he pointed out that lags apart there was a large gap between the level of residential prices measured by the private sector and government. These have historically moved together, and I’d guess the official indices will catch up. 4/N
.@paulkrugman would also be more convincing if he acknowledged that dropping out the median observation in a group of observations does not change its median. 5/N
In the @nytimes op-ed, @paulkrugman then shifts his attention to the labor market as a guide to underlying inflation. I agree that wages are a kind of super core measure of inflation. 6/N
Paul focuses on average hourly earnings in the employment survey. He neglects to point out that it is badly flawed by composition effects. Nor does he observe that better indices like the Wage Growth Tracker and the ECI suggest a much less benign picture of wage inflation. 7/N
Having stressed the distinction between new and continuing prices in the context of housing where it works to allay inflation concerns, Paul neglects it in the context of wage inflation. 8/N
The gap between wage gains for those changing jobs and those staying in jobs is at record levels. This suggests accelerating wage inflation. 9/N
Given dismal productivity growth, likely caused by quiet quitting, wage inflation will have to come down significantly if sustained months near 2 percent inflation is to be attained. I do not understand the basis for believing this is likely without a meaningful recession. 10/10

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More from @LHSummers

Oct 14
Core CPI inflation remains sticky, reaching a new high of 6.6%, again pushed up by OER and rent. I'm glad that many have shifted their attention to the importance of housing for overall inflation. Some comments. 1/N
First, the lag in residential inflation ensured that OER and rent kept inflation down in 2021, while private sector rents were increasing fast. This has reversed in 2022, as we predicted in February. 2/N
Second, others have rightly pointed out that we should expect the CPI to converge in levels to the private sector rent indices. This is worrying, because the gap between official and private data is at a record. 3/N
Read 6 tweets
Oct 11
New BLS paper confirms the takeaways of my work with @juddcramer and @ma_bolhuis: rent inflation for new tenants leads official residential inflation by about a year. 1/N
In January, growth of private sector rents from Zillow and CoreLogic was at all time-highs. We correctly predicted the increase in residential inflation towards 7 percent. Housing is now the most important driver of high inflation. 2/N
The BLS paper confirms the logic underlying our models: private sector rent growth leads official inflation because they reflect the rent growth for new tenants, whereas official measures cover all tenants. 3/N
Read 6 tweets
Oct 5
Next week's @IMFNews - @WorldBank meetings are the last stop before a coming economic storm. Finance Ministers face what has been labeled a polycrisis.

Read my @washingtonpost column w @MasoodCGD @CGDev
Challenges ranging from increased interest rates, climate change and an epically strong dollar, to food-supply shortages, high inflation and a still-prevalent pandemic all combine to threaten not just the global economy but also the livelihoods of hundreds of millions.
It is likely now that in the next year the United States will go into recession, Europe will be battered by high energy costs and China will suffer its lowest growth in decades. A major slowdown in the global economy is almost inevitable.
Read 6 tweets
Sep 28
Why, with hundreds of thousands of Puerto Ricans suffering after a terrible hurricane, hasn’t the @JoeBiden Administration authorized a Jones Act waiver that would make available 300,000 barrels of diesel fuel?
I doubt it is inhibitions about legal authority, given the approach taken on student loans and rent moratoria and the absence of motivated plaintiffs.

If the Jones Act really binds in a situation like this, that is more reason to repeal it.
The Jones Act is inflationary because it encourages the shipment of LNG to Europe rather than New England and raises the cost of all ocean borne cargo transit within the US.

It increases our energy vulnerability by shipping our fuels out and other fuels in.
Read 5 tweets
Sep 27
I was very pessimistic about the consequences of utterly irresponsible UK policy on Friday. But, I did not expect markets to get so bad so fast.

A strong tendency for long rates to go up as the currency goes down is a hallmark of situations where credibility has been lost.
This happens most frequently in developing countries but happened with early Mitterrand before a U turn, in the late Carter Administration before Volcker and with Lafontaine in Germany.
British credit default swaps still suggest negligible default probabilities, but they have risen very sharply. I cannot remember a G10 country with so much debt sustainability risk in its own currency.
Read 10 tweets
Sep 21
The @FederalReserve is continuing its adjustments towards reality with rates predicted to rise to 4.6 in 2023, slower growth and higher unemployment. Good to see. But we are far from out of the woods. My thoughts:
Glad also to see firmness of commitment to disinflation. I hope @FederalReserve will do what is necessary to contain inflation. I suspect it is still, as for the last 18 months, more difficult hold than they recognize.
The Fed is projecting 4.6 Fed funds at END of 2023. If this happens, I expect that rate will have been higher during year. So, the Fed’s implied expectation for the terminal rate must be very much in the range of 5 percent. Encouraging but not sure fully grasped by the market.
Read 11 tweets

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