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There is more Inflation complexity ahead

By Mohamed A. El-Erian

09 Feb 2023 · 4 min read

Editor's Note

In PS, Mohamed A. El-Erian writes that we should be wary of describing today's inflationary pressures as transitory. This is an over-simplification that encourages complacency and inertia, he claims.

CAMBRIDGE – Nearly two years into the current bout of inflation, the concept of “transitory inflation” is making a comeback as the COVID-related supply shocks dissipate. This comes at a time when it is critically important to keep an open mind about the trajectory of inflation, including by avoiding an over-simplified transitory narrative that risks obfuscating the real issues facing the US economy.

“Transitory” is a comforting notion suggesting a short-lived, reversible phenomenon. Critically, the concept assumes away the need to adjust behaviors. After all, if an inflation scare is only temporary, the best way to deal with it is simply to wait it out (or, to use a policy and market term, “look through it”). That is why this narrative is particularly dangerous. By encouraging complacency and inertia, it could exacerbate an already serious problem and make it harder to solve.

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