Inflation scare? Look at this chart before freaking out
Inflation is on the rise in America, but if price pressures were likely to persist, contrary to the Federal Reserve’s expectations, the data would be painting a different picture, one economist argued Friday.
In a note to clients, Daniel Vernazza, chief international economist at UniCredit Bank, highlighted the complicated but interesting chart below:
The chart plots the change in prices (vertical axis) against the change in spending (horizontal axis) relative to pre-pandemic levels in February 2020, by industry. It uses the personal-consumption expenditures deflator instead of the consumer-price index because PCE is the Fed’s preferred measure of inflation and to make better comparisons with spending data.
It shows that most items have moved backward and forward along the horizontal axis, implying that prices have shown little sensitivity to changes in demand, Vernazza explained. And for service sectors hit particuarly hard by the pandemic, including airfares and accommodation, the reopening of the econony has led to only a partial recovery of prices, which are still not back to pre-pandemic levels.
It’s a somewhat different story for car rentals, where acute supply …
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