Plain English with Derek Thompson The Big Inflation FAQ: Why It’s So High, How Everyone Got It Wrong, and What's Next
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Jun 13, 2022 Justin Wolfers, a professor of public policy and economics at the University of Michigan, breaks down the complexities of inflation and its surprising trajectory. He discusses the stark differences between core and headline inflation, emphasizing how volatile prices distort economic health perceptions. Wolfers tackles hot topics like 'greedflation' and the impact of wage growth on inflation. He also critiques the media's pessimism on the economy, despite a robust labor market, providing vital insights into the Federal Reserve's balancing act amidst rising rates.
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Focus on Core Inflation
- To understand inflation, look at core inflation, which excludes volatile food and gas prices.
- Core inflation provides a clearer picture of underlying trends and future predictions.
Politically Salient Prices
- The most politically salient prices, like gas and groceries, are also the most volatile and least informative about the future.
- These volatile prices can make headlines look worse than the underlying economic reality.
Why Inflation Was a Surprise
- Most economists haven't experienced significant inflation in their professional lives, making it difficult to predict.
- The pandemic created unique economic conditions that existing models couldn't accurately capture.