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“Perfect storm” to keep US inflation at its highest level in 30 years

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Daiwa’s capital markets list supply chain bottlenecks, tight labor markets, and ultra-flexible fiscal and monetary policies that are likely to keep US inflation at its highest level since 1991.

The comments are contained in a Wall Street Journal report on Economists Survey Expectations for the US CPI In the coming months, in summary:

  • Economists, on average, see inflation of 5.25% in December, slightly less than the rate that has prevailed since June. Assuming a similar level in October and November, that would mark the longest inflation that has been above 5% since early 1991.
  • will drop to 3.4% by June next year, then 2.6% by the end of 2022
  • “Monetary policy cannot solve the problems on the supply side, but it will have to act and it must act if we see a risk, particularly for medium-term inflation and medium-term inflation expectations.”

This is correct, just as central bankers cannot pump more oil (or gas!) If their flow effects of higher energy prices drive inflation. However, persistent inflation will, at some point, provoke a monetary policy response (assuming it remains persistent).

“Perfect storm” to keep US inflation at its highest level in 30 years

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