Version: 4 (current) | Updated: 11/13/2025, 6:20:58 AM
Added description
**File‑to‑content mappings**
@file_pinax:document {title: "Economic Analysis Collection", creator: @adam_tooze, created: @date_2022_06_09, language: "en", subjects: ["Economic Analysis","Inflation","Stagflation","Debt Crises","Price Setting","Wage Setting","Monetary Policy","Central Banking","Economic Regimes","Inflation Control","Economic History","1970s","1980s","Emerging Markets","Developing Economies","Dollar Appreciation","Interest Rates","Exchange Rates","Commodity Prices","Bank of International Settlements","World Bank","Economic Prospects"], place: ["United States","Global"]}
@file_55307607_price_puzzle:document {contains: ["https://bfi.uchicago.edu/wp-content/uploads/fisher.pdf","https://www.sciencedirect.com/science/article/pii/S016407041000087X","file:///Users/adamtooze/Downloads/stagnant%20services.pdf","https://academic.oup.com/jeea/article/14/4/871/2691355?login=true","http://www.thebillionpricesproject.com/","file:///Users/adamtooze/Downloads/(ACADEMIQUE)%20Collectif,%20Michel-Pierre%20Ch%C3%A9lini%20(editor),%20Laurent%20Warlouzet%20(editor)%20-%20Calmer%20les%20prix%20_%20L'inflation%20en%20Europe%20dans%20les%20ann%C3%A9es%201970-Les%20Presses%20de%20Sciences%20Po%20(2017).pdf"]}
@file_56476216_inflation_and_distribution:document {contains: ["https://www.oecd-ilibrary.org/sites/e2352f43-en/index.html?itemId=/content/component/e2352f43-en"]}
@file_58506992_chartbook_127_the_world_banks_global:document {title: "Chartbook 127 – The World Bank’s global take on the 1970s, stagflation and debt crises", published: @date_2022_06_09, audience: @everyone, type: @newsletter}
@file_62337996_chartbook_133_under_the_hood_of_the:document {title: "Chartbook #133 Under the hood of the power dynamics of inflation", published: @date_2022_07_03, audience: @everyone, type: @newsletter}
@file_62355744_chartbook_134_inflation_as_an_emergent:document {title: "Chartbook #134: Inflation as an emergent macroeconomic phenomenon", published: @date_2022_07_04, audience: @everyone, type: @newsletter}
**People & Organizations**
@adam_tooze:person {full_name: "Adam Tooze"}
@world_bank:organization {name: "World Bank"}
@bis:organization {name: "Bank for International Settlements"}
@oecd:organization {name: "Organisation for Economic Co‑operation and Development"}
@fed:organization {name: "Federal Reserve"}
@substack:organization {name: "Substack"}
@larry_summers:person {full_name: "Larry Summers"}
@olivier_blanchard:person {full_name: "Olivier Blanchard"}
@paul_volcker:person {full_name: "Paul Volcker"}
@alan_greenspan:person {full_name: "Alan Greenspan"}
@daniela_gabor:person {full_name: "Daniela Gabor"}
@billion_prices_project:publication {title: "Billion Prices Project", url: "http://www.thebillionpricesproject.com/"}
**Key Concepts & Events**
@inflation:concept {definition: "Sustained, general increase in the price level, requiring feedback between price‑setters and wage‑setters (wage‑price spiral)"}
@stagflation:concept {definition: "Simultaneous high inflation and stagnant growth"}
@wage_price_spiral:concept {definition: "Feedback loop where rising wages fuel price increases and vice‑versa"}
@low_inflation_regime:concept {characteristics: ["price changes idiosyncratic","low correlation across sectors","reduced wage‑price linkage"]}
@high_inflation_regime:concept {characteristics: ["price changes similar across sectors","strong spillovers","high price‑setting power"]}
@price_spillover_matrix:document {title: "Sectoral price‑spillover matrix (GFEVD)"}
@gfevd:concept {definition: "Generalised Forecast Error Variance Decomposition – measures how shocks to one sector affect variance of others"}
@collective_bargaining:concept {definition: "Institutional mechanism for coordinated wage negotiations"}
@unionisation:concept
@labour_market_deregulation:concept
@globalisation:concept
@demographics:concept
@commodity_price_shock:concept
@oil_price_shock_2022:concept {similar_to: @oil_price_shock_1979}
@oil_price_shock_1979:concept
@gas_price_shock_2022:concept
@dollar_appreciation:concept {since: @russian_invasion_ukraine}
@dollar_devaluation_1970s:concept
@emerging_market_debt:concept
@debt_crisis:concept
@debt_wave_1970s:concept {cause: "accommodative monetary policies in advanced economies"}
@debt_wave_2010s:concept {characteristics: "largest, fastest, most synchronized debt wave"}
@price_setting_power:concept
@wage_setting_power:concept
@inflation_expectations:concept
@monetary_policy:concept
@interest_rate:concept
@real_wage:concept
@price_index:concept
@cpi:concept
@price_similarity:concept
@price_correlation:concept
@price_spillover:concept
@inflation_control:concept
@central_bank_credibility:concept
@inflation_psychology:concept
@price_targeting:concept
@inflation_target:concept
@price_stability:concept
@price_anchor:concept
@price_expectations:concept
@wage_indexation:concept
@policy_response:concept
@unconventional_measures:concept
@volcker_shock_1979_1981:event {description: "Rapid interest‑rate hikes to bring 1970s inflation under control"}
@great_inflation_1970s:event
@low_inflation_regime_1990s:event
@2022_global_growth_forecast_slash:event {when: @date_2022_06_09, new_forecast: 2.9%, previous: 5.7%}
@2022_inflation_spike:event {since: @date_2021, drivers: ["supply constraints","demand shock","oil price surge"]}
**Documents & Reports**
@economic_analysis_collection:document {title: "Economic Analysis Collection", creator: @adam_tooze, created: @date_2022_06_09}
@chartbook_127:document {title: "Chartbook 127 – The World Bank’s global take on the 1970s, stagflation and debt crises", published: @date_2022_06_09, audience: @everyone, type: @newsletter}
@chartbook_133:document {title: "Chartbook #133 Under the hood of the power dynamics of inflation", published: @date_2022_07_03, audience: @everyone, type: @newsletter}
@chartbook_134:document {title: "Chartbook #134: Inflation as an emergent macroeconomic phenomenon", published: @date_2022_07_04, audience: @everyone, type: @newsletter}
@annual_economic_review_2022:document {title: "Annual Economic Review 2022", publisher: @bis, year: @date_2022}
@global_economic_prospects_2022:document {title: "Global Economic Prospects 2022", publisher: @world_bank, year: @date_2022}
**Relationships**
@adam_tooze -> created -> @economic_analysis_collection
@adam_tooze -> authored -> @chartbook_127
@adam_tooze -> authored -> @chartbook_133
@adam_tooze -> authored -> @chartbook_134
@world_bank -> announced -> @2022_global_growth_forecast_slash
@world_bank -> produced -> @global_economic_prospects_2022
@world_bank -> published -> @chartbook_127
@world_bank -> warned -> @debt_crisis {risk: "high", region: "EMDEs"}
@world_bank -> noted -> @debt_wave_1970s
@world_bank -> noted -> @debt_wave_2010s
@world_bank -> linked -> @debt_wave_1970s -> @stagflation
@world_bank -> linked -> @debt_wave_2010s -> @current_debt_wave
@world_bank -> said -> "Low global real interest rates and the rapid development of syndicated loan markets encouraged a surge in EMDE debt, especially in Latin America (+12 % GDP) and low‑income countries (+18 % GDP) during the 1970s‑80s" {when: @date_1970s_1980s}
@world_bank -> said -> "Capital flowed from oil exporters to EMDEs with large fiscal and current‑account deficits"
@world_bank -> said -> "Drivers of inflation in 2021‑2022 were a cocktail of supply constraints, demand shock and oil‑price surge"
@world_bank -> said -> "Inflation expectations remain anchored in advanced economies and EMDEs"
@world_bank -> said -> "US inflation expectations have risen to about half the level of February 1980"
@world_bank -> said -> "Wage inflation in the US is rapid but remains behind price inflation"
@world_bank -> said -> "Interest rates are negative worldwide, especially in the US"
@world_bank -> said -> "If the Fed raises rates, the risk of a major EMDE debt crisis increases"
@bis -> defines -> @inflation
@bis -> defines -> @low_inflation_regime
@bis -> defines -> @high_inflation_regime
@bis -> provides -> @price_spillover_matrix
@bis -> explains -> "Low‑inflation regimes feature reduced pricing power of labour, declining collective bargaining and weaker wage‑price linkage"
@bis -> explains -> "High‑inflation regimes feature strong pricing power of both labour and firms, centralised wage negotiations and strong spillovers"
@bis -> notes -> "Monetary policy is key to establishing and hard‑wiring a low‑inflation regime"
@bis -> notes -> "Transitions from low to high inflation are self‑reinforcing; price shocks become more similar across sectors"
@bis -> notes -> "Sectoral spillover intensity can be measured with GFEVD (see @price_spillover_matrix)"
@bis -> warns -> @inflation_control {priority: "prevent second‑round wage‑price effects"}
@bis -> observes -> "Since the 1990s collective bargaining coverage has sharply declined"
@bis -> observes -> "Sensitivity of wages to past price increases has sharply declined since the 1990s"
@bis -> observes -> "Price‑setting power of labour has fallen, while that of firms remains"
@bis -> observes -> "In low‑inflation periods price movements are idiosyncratic and weakly correlated"
@bis -> observes -> "In high‑inflation periods price movements become more correlated and sectoral spillovers increase"
@chartbook_127 -> cites -> @world_bank
@chartbook_127 -> cites -> @annual_economic_review_2022
@chartbook_127 -> mentions -> @larry_summers
@chartbook_127 -> mentions -> @olivier_blanchard
@chartbook_127 -> mentions -> @paul_volcker
@chartbook_127 -> mentions -> @alan_greenspan
@chartbook_127 -> mentions -> @daniela_gabor
@chartbook_133 -> cites -> @bis
@chartbook_133 -> cites -> @annual_economic_review_2022
@chartbook_133 -> mentions -> @world_bank
@chartbook_133 -> mentions -> @larry_summers
@chartbook_133 -> mentions -> @olivier_blanchard
@chartbook_133 -> mentions -> @paul_volcker
@chartbook_133 -> mentions -> @alan_greenspan
@chartbook_133 -> mentions -> @daniela_gabor
@chartbook_134 -> cites -> @bis
@chartbook_134 -> cites -> @annual_economic_review_2022
@chartbook_134 -> mentions -> @inflation
@chartbook_134 -> mentions -> @stagflation
@chartbook_134 -> mentions -> @price_spillover_matrix
@chartbook_134 -> mentions -> @gfevd
@chartbook_134 -> mentions -> @energy_price_shock_2022
@chartbook_134 -> mentions -> @commodity_price_shock
@chartbook_134 -> mentions -> @dollar_appreciation
@chartbook_134 -> mentions -> @dollar_devaluation_1970s
@chartbook_134 -> mentions -> @collective_bargaining
@chartbook_134 -> mentions -> @unionisation
@chartbook_134 -> mentions -> @labour_market_deregulation
@chartbook_134 -> mentions -> @globalisation
@chartbook_134 -> mentions -> @demographics
@chartbook_134 -> mentions -> @price_setting_power
@chartbook_134 -> mentions -> @wage_setting_power
@chartbook_134 -> mentions -> @inflation_expectations
@chartbook_134 -> mentions -> @monetary_policy
@chartbook_134 -> mentions -> @interest_rate
@chartbook_134 -> mentions -> @real_wage
@chartbook_134 -> mentions -> @price_index
@chartbook_134 -> mentions -> @cpi
@chartbook_134 -> mentions -> @price_similarity
@chartbook_134 -> mentions -> @price_correlation
@chartbook_134 -> mentions -> @price_spillover
@chartbook_134 -> mentions -> @inflation_control
@chartbook_134 -> mentions -> @central_bank_credibility
@chartbook_134 -> mentions -> @inflation_psychology
@chartbook_134 -> mentions -> @price_targeting
@chartbook_134 -> mentions -> @inflation_target
@chartbook_134 -> mentions -> @price_stability
@chartbook_134 -> mentions -> @price_anchor
@chartbook_134 -> mentions -> @price_expectations
@chartbook_134 -> mentions -> @wage_indexation
@chartbook_134 -> mentions -> @policy_response
@chartbook_134 -> mentions -> @unconventional_measures
@chartbook_134 -> mentions -> @fed
@chartbook_134 -> mentions -> @us
@chartbook_134 -> mentions -> @europe
@chartbook_134 -> mentions -> @oil_price_shock_1979
@chartbook_134 -> mentions -> @oil_price_shock_2022
@chartbook_134 -> mentions -> @gas_price_shock_2022
@chartbook_134 -> mentions -> @emerging_market_debt
@chartbook_134 -> mentions -> @debt_wave_1970s
@chartbook_134 -> mentions -> @debt_wave_2010s
@chartbook_134 -> mentions -> @bond_spreads {type: "EMDE sovereign spreads", recent_increase: "≈250 bps for commodity importers, <100 bps for exporters"}
@chartbook_134 -> mentions -> @price_spillover_analysis {based_on: @price_spillover_matrix}
@chartbook_134 -> mentions -> @inflation_regime_transition {self‑reinforcing: true}
@chartbook_134 -> mentions -> @price_setting_power {decline_of_labour: true}
@chartbook_134 -> mentions -> @wage_setting_power {decline_of_labour: true}
@chartbook_134 -> mentions -> @collective_bargaining {decline_since: @date_1990s}
@chartbook_134 -> mentions -> @price_spillover_matrix {method: "GFEVD"}
@chartbook_134 -> mentions -> @price_spillover_matrix {visual: "heat‑map of sectoral shock transmission"}
@chartbook_134 -> mentions -> @price_spillover_matrix {interpretation: "darker cells = stronger spillovers"}
@chartbook_134 -> mentions -> @price_spillover_matrix {comparison: "high‑inflation period (left) vs low‑inflation period (right)"}
@chartbook_134 -> mentions -> @price_spillover_matrix {finding: "inter‑sectoral linkages attenuate as inflation falls"}
@chartbook_134 -> mentions -> @price_spillover_matrix {implication: "low‑inflation regime makes monetary policy less effective on the common component"}
@chartbook_134 -> mentions -> @price_spillover_matrix {policy_note: "central banks need to monitor spillover intensity as an early‑warning signal"}
@chartbook_134 -> mentions -> @inflation_control {political_choice: true, distributional_implications: true}
@chartbook_134 -> mentions -> @low_inflation_regime {features: ["price changes idiosyncratic","weak wage‑price feedback","reduced collective bargaining"]}
@chartbook_134 -> mentions -> @high_inflation_regime {features: ["price changes similar","strong wage‑price feedback","centralised wage negotiations"]}
@chartbook_134 -> mentions -> @price_setting_power {dual challenge with wage‑setting power}
@chartbook_134 -> mentions -> @wage_setting_power {dual challenge with price‑setting power}
@chartbook_134 -> mentions -> @monetary_policy {role: "establish and hard‑wire low‑inflation regime"}
@chartbook_134 -> mentions -> @central_bank_credibility {role: "help break wage‑price spirals"}
@chartbook_134 -> mentions -> @inflation_psychology {role: "inflation becomes focal point, influencing expectations"}
@chartbook_134 -> mentions -> @policy_response {need: "address both price and wage dynamics"}
**Date entities (auto‑created)**
@date_2021, @date_2022, @date_2022_06_09, @date_2022_07_03, @date_2022_07_04, @date_1970s, @date_1980s, @date_1990s, @date_1979_1981, @date_1970s_1980s, @date_2021_2022, @date_2022_06_09, @date_2022_07_03, @date_2022_07_04, @date_2021, @date_2022, @date_2021_2022.<!--
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<p>Of course this makes </p><p>https://bfi.uchicago.edu/wp-content/uploads/fisher.pdf</p><p>https://www.sciencedirect.com/science/article/pii/S016407041000087X</p><p>slowflation</p><p>file:///Users/adamtooze/Downloads/stagnant%20services.pdf</p><p>redistribution</p><p>https://academic.oup.com/jeea/article/14/4/871/2691355?login=true</p><p>billion prices project</p><p>http://www.thebillionpricesproject.com/</p><p>file:///Users/adamtooze/Downloads/(ACADEMIQUE)%20Collectif,%20Michel-Pierre%20Ch%C3%A9lini%20(editor),%20Laurent%20Warlouzet%20(editor)%20-%20Calmer%20les%20prix%20_%20L'inflation%20en%20Europe%20dans%20les%20ann%C3%A9es%201970-Les%20Presses%20de%20Sciences%20Po%20(2017).pdf</p><!--
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<p>https://www.oecd-ilibrary.org/sites/e2352f43-en/index.html?itemId=/content/component/e2352f43-en</p><!--
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<p class="button-wrapper" data-attrs="{"url":"https://adamtooze.substack.com/subscribe?","text":"Subscribe now","action":null,"class":null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://adamtooze.substack.com/subscribe?"><span>Subscribe now</span></a></p><p>This week the World Bank announced that it is slashing its forecast for 2022 global growth to 2.9%, down from 5.7% in 2021. This is the sharpest deceleration in a post-recession recovery in 80 years. </p><p>The baseline scenario projects a slight re-acceleration 2023, but in the event of a severe Fed tightening, an energy embargo triggered by the war and continuing COVID issues in China, that number could fall to as low as 1.5 percent. </p><p>With inflation also running at record rates, comparisons are being drawn to stagflation of the 1970s. Heavy-weights like Larry Summers and Olivier Blanchard have been to the fore in warning that inflation is now so rapid that to bring it under control may require a draconian monetary policy intervention. </p><p>This may well prove alarmist. Not only are the data on the degree of inflationary momentum ambiguous, but in the debate so far they are drawn overwhelmingly from the US and Europe. </p><p>The World Bank in the latest report on <a href="https://www.worldbank.org/en/publication/global-economic-prospects">Global Economic Prospects</a> for June 2022 takes a broader view. In a Special Focus section they take on the theme of Global Stagflation and the comparison to the 1970s. Their analysis, they claim, is the first to provide a</p><blockquote><p>systematic comparison of the current juncture with the stagflationary period of the 1970s. The previous literature has mostly focused on a comparison of high inflation during that period with today’s inflationary challenges and studied the role of monetary policy and commodity price shocks in driving inflation in the two periods. This study considers the stagflation of the 1970s and examines the role of fiscal policy and broader structural differences in explaining weak output growth and high inflation. Second, in contrast to much of the earlier work, which has focused on the United States, this study presents a global perspective by examining the evidence of stagflation, and the challenges posed by it, for a broad set of countries.5 The threat of stagflation is global since the current combination of high inflation and weak growth is highly synchronized across many countries. Third, this <em>Focus</em> explicitly links the Emerging Market and Developing Economy debt buildup of the 1970s that culminated in the debt crises of the 1980s to the stagflation of that era and its eventual resolution in advanced economies. The 1970s witnessed the first global debt wave fueled by a prolonged period of accommodative monetary policies in major advanced economies. Since 2010, the global economy has been experiencing the largest, fastest, and most synchronized debt wave of the past five decades amid a protracted period of monetary policy accommodation. The study considers the lessons of the debt accumulation of the 1970s for the current debt wave.</p></blockquote><p>As the World Bank remarks, </p><blockquote><p>The current juncture resembles the early 1970s in three key respects: supply shocks and elevated global inflation in the near-term, preceded by a protracted period of highly accommodative monetary policy in major economies, together with recent marked fiscal expansion; prospects for weakening growth over the longer term, which echo the unforeseen slowdown in potential growth of the 1970s; and vulnerabilities in EMDEs to the monetary policy tightening by advanced economies that will be needed to rein in inflation.</p></blockquote><p>The energy price surge has rocked the entire world economy. In real terms the oil price shock of 2022 is in the same ballpark as 1979. The gas price shock is dramatically worse than anything previously seen. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!kQic!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc991d7c7-0664-4585-8563-b337dd9843ec_454x434.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!kQic!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc991d7c7-0664-4585-8563-b337dd9843ec_454x434.png 424w, 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data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/c991d7c7-0664-4585-8563-b337dd9843ec_454x434.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":434,"width":454,"resizeWidth":null,"bytes":52699,"alt":"","title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" title="" srcset="https://substackcdn.com/image/fetch/$s_!kQic!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc991d7c7-0664-4585-8563-b337dd9843ec_454x434.png 424w, https://substackcdn.com/image/fetch/$s_!kQic!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc991d7c7-0664-4585-8563-b337dd9843ec_454x434.png 848w, https://substackcdn.com/image/fetch/$s_!kQic!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc991d7c7-0664-4585-8563-b337dd9843ec_454x434.png 1272w, https://substackcdn.com/image/fetch/$s_!kQic!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc991d7c7-0664-4585-8563-b337dd9843ec_454x434.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>From a global point of view it is clear that though inflation has ticked up in recent months, following decades of lowflation, we are still a long way from the great inflation of the 1970s. </p><blockquote><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!kacD!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff0bf9f10-b623-47ec-82fa-094203ab173f_414x386.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!kacD!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff0bf9f10-b623-47ec-82fa-094203ab173f_414x386.png 424w, https://substackcdn.com/image/fetch/$s_!kacD!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff0bf9f10-b623-47ec-82fa-094203ab173f_414x386.png 848w, https://substackcdn.com/image/fetch/$s_!kacD!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff0bf9f10-b623-47ec-82fa-094203ab173f_414x386.png 1272w, https://substackcdn.com/image/fetch/$s_!kacD!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff0bf9f10-b623-47ec-82fa-094203ab173f_414x386.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/f0bf9f10-b623-47ec-82fa-094203ab173f_414x386.png" width="414" height="386" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/f0bf9f10-b623-47ec-82fa-094203ab173f_414x386.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":386,"width":414,"resizeWidth":null,"bytes":96413,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!kacD!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff0bf9f10-b623-47ec-82fa-094203ab173f_414x386.png 424w, https://substackcdn.com/image/fetch/$s_!kacD!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff0bf9f10-b623-47ec-82fa-094203ab173f_414x386.png 848w, https://substackcdn.com/image/fetch/$s_!kacD!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff0bf9f10-b623-47ec-82fa-094203ab173f_414x386.png 1272w, https://substackcdn.com/image/fetch/$s_!kacD!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff0bf9f10-b623-47ec-82fa-094203ab173f_414x386.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div></blockquote><p>World Bank SF1.1 A.</p><p>In both the advanced economies and emerging and developing economies, the World Bank analysis shows that the drivers of inflation in 2021-2022 are a cocktail of supply constraints, a demand shock and a surge in oil prices. In neither the advanced economies nor the emerging market world, are supply factors - the famous supply-chains - clearly dominant. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!r9KO!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fcfe266c9-75ef-4ca2-ae20-106917400d69_1400x1002.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!r9KO!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fcfe266c9-75ef-4ca2-ae20-106917400d69_1400x1002.png 424w, https://substackcdn.com/image/fetch/$s_!r9KO!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fcfe266c9-75ef-4ca2-ae20-106917400d69_1400x1002.png 848w, https://substackcdn.com/image/fetch/$s_!r9KO!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fcfe266c9-75ef-4ca2-ae20-106917400d69_1400x1002.png 1272w, https://substackcdn.com/image/fetch/$s_!r9KO!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fcfe266c9-75ef-4ca2-ae20-106917400d69_1400x1002.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/cfe266c9-75ef-4ca2-ae20-106917400d69_1400x1002.png" width="1400" height="1002" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/cfe266c9-75ef-4ca2-ae20-106917400d69_1400x1002.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":1002,"width":1400,"resizeWidth":null,"bytes":464913,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!r9KO!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fcfe266c9-75ef-4ca2-ae20-106917400d69_1400x1002.png 424w, https://substackcdn.com/image/fetch/$s_!r9KO!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fcfe266c9-75ef-4ca2-ae20-106917400d69_1400x1002.png 848w, https://substackcdn.com/image/fetch/$s_!r9KO!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fcfe266c9-75ef-4ca2-ae20-106917400d69_1400x1002.png 1272w, https://substackcdn.com/image/fetch/$s_!r9KO!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fcfe266c9-75ef-4ca2-ae20-106917400d69_1400x1002.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>And despite this variety of shocks, long-term inflation expectations so far remain anchored both in the advanced economies and in the emerging market world.</p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!5PIG!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fbad1b8ce-5ada-49d6-a413-1fac6c8a0449_686x1146.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!5PIG!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fbad1b8ce-5ada-49d6-a413-1fac6c8a0449_686x1146.png 424w, https://substackcdn.com/image/fetch/$s_!5PIG!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fbad1b8ce-5ada-49d6-a413-1fac6c8a0449_686x1146.png 848w, https://substackcdn.com/image/fetch/$s_!5PIG!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fbad1b8ce-5ada-49d6-a413-1fac6c8a0449_686x1146.png 1272w, https://substackcdn.com/image/fetch/$s_!5PIG!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fbad1b8ce-5ada-49d6-a413-1fac6c8a0449_686x1146.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/bad1b8ce-5ada-49d6-a413-1fac6c8a0449_686x1146.png" width="686" height="1146" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/bad1b8ce-5ada-49d6-a413-1fac6c8a0449_686x1146.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":1146,"width":686,"resizeWidth":null,"bytes":252201,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!5PIG!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fbad1b8ce-5ada-49d6-a413-1fac6c8a0449_686x1146.png 424w, https://substackcdn.com/image/fetch/$s_!5PIG!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fbad1b8ce-5ada-49d6-a413-1fac6c8a0449_686x1146.png 848w, https://substackcdn.com/image/fetch/$s_!5PIG!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fbad1b8ce-5ada-49d6-a413-1fac6c8a0449_686x1146.png 1272w, https://substackcdn.com/image/fetch/$s_!5PIG!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fbad1b8ce-5ada-49d6-a413-1fac6c8a0449_686x1146.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>In the US, inflation expectations have significantly risen, especially over the 12-month time horizon. But they are no more than half the levels seen in February 1980. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!FNs5!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7aa43b1f-759e-4ad9-80c7-02be165765d4_538x524.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!FNs5!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7aa43b1f-759e-4ad9-80c7-02be165765d4_538x524.png 424w, https://substackcdn.com/image/fetch/$s_!FNs5!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7aa43b1f-759e-4ad9-80c7-02be165765d4_538x524.png 848w, https://substackcdn.com/image/fetch/$s_!FNs5!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7aa43b1f-759e-4ad9-80c7-02be165765d4_538x524.png 1272w, https://substackcdn.com/image/fetch/$s_!FNs5!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7aa43b1f-759e-4ad9-80c7-02be165765d4_538x524.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/7aa43b1f-759e-4ad9-80c7-02be165765d4_538x524.png" width="538" height="524" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/7aa43b1f-759e-4ad9-80c7-02be165765d4_538x524.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":524,"width":538,"resizeWidth":null,"bytes":52314,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!FNs5!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7aa43b1f-759e-4ad9-80c7-02be165765d4_538x524.png 424w, https://substackcdn.com/image/fetch/$s_!FNs5!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7aa43b1f-759e-4ad9-80c7-02be165765d4_538x524.png 848w, https://substackcdn.com/image/fetch/$s_!FNs5!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7aa43b1f-759e-4ad9-80c7-02be165765d4_538x524.png 1272w, https://substackcdn.com/image/fetch/$s_!FNs5!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7aa43b1f-759e-4ad9-80c7-02be165765d4_538x524.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>Wage inflation, which was a driver of wage-price spirals in the 1970s, is far more muted today, at least outside the US. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!Sm9U!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc6eabdac-eecb-414c-9fbd-8940637d91fe_546x490.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!Sm9U!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc6eabdac-eecb-414c-9fbd-8940637d91fe_546x490.png 424w, https://substackcdn.com/image/fetch/$s_!Sm9U!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc6eabdac-eecb-414c-9fbd-8940637d91fe_546x490.png 848w, https://substackcdn.com/image/fetch/$s_!Sm9U!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc6eabdac-eecb-414c-9fbd-8940637d91fe_546x490.png 1272w, https://substackcdn.com/image/fetch/$s_!Sm9U!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc6eabdac-eecb-414c-9fbd-8940637d91fe_546x490.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/c6eabdac-eecb-414c-9fbd-8940637d91fe_546x490.png" width="546" height="490" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/c6eabdac-eecb-414c-9fbd-8940637d91fe_546x490.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":490,"width":546,"resizeWidth":null,"bytes":32016,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!Sm9U!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc6eabdac-eecb-414c-9fbd-8940637d91fe_546x490.png 424w, https://substackcdn.com/image/fetch/$s_!Sm9U!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc6eabdac-eecb-414c-9fbd-8940637d91fe_546x490.png 848w, https://substackcdn.com/image/fetch/$s_!Sm9U!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc6eabdac-eecb-414c-9fbd-8940637d91fe_546x490.png 1272w, https://substackcdn.com/image/fetch/$s_!Sm9U!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc6eabdac-eecb-414c-9fbd-8940637d91fe_546x490.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>In the US, wage inflation is rapid, but remains behind price inflation, and, as the World Bank somewhat coyly remarks, in institutional terms there are huge differences between the 1970s and the present day. “Rigidities” are less pronounced, which is an unfortunate economist’s way of talking about the decline of organized labour and workers’ bargaining power. </p><p>Part of the reason that markets are as relaxed as they are is, that if the Fed and the other central banks see fit to take action, they have plenty of scope to do so before needing to resort to Volcker-style shock therapy.</p><p>Right now, interest rates all over the world are in negative territory. In the US they are deeply so. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!r1zj!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3a3d5609-6b4b-4f2b-b67d-e56e573c8086_1070x500.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!r1zj!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3a3d5609-6b4b-4f2b-b67d-e56e573c8086_1070x500.png 424w, https://substackcdn.com/image/fetch/$s_!r1zj!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3a3d5609-6b4b-4f2b-b67d-e56e573c8086_1070x500.png 848w, https://substackcdn.com/image/fetch/$s_!r1zj!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3a3d5609-6b4b-4f2b-b67d-e56e573c8086_1070x500.png 1272w, https://substackcdn.com/image/fetch/$s_!r1zj!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3a3d5609-6b4b-4f2b-b67d-e56e573c8086_1070x500.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/3a3d5609-6b4b-4f2b-b67d-e56e573c8086_1070x500.png" width="1070" height="500" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/3a3d5609-6b4b-4f2b-b67d-e56e573c8086_1070x500.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":500,"width":1070,"resizeWidth":null,"bytes":153646,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!r1zj!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3a3d5609-6b4b-4f2b-b67d-e56e573c8086_1070x500.png 424w, https://substackcdn.com/image/fetch/$s_!r1zj!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3a3d5609-6b4b-4f2b-b67d-e56e573c8086_1070x500.png 848w, https://substackcdn.com/image/fetch/$s_!r1zj!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3a3d5609-6b4b-4f2b-b67d-e56e573c8086_1070x500.png 1272w, https://substackcdn.com/image/fetch/$s_!r1zj!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3a3d5609-6b4b-4f2b-b67d-e56e573c8086_1070x500.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>In the 1979-1981, the initial impact of the Volcker shock was simply to raise rates to the level of inflation. Then, as inflation rapidly slowed, interest rates surged to historic highs. We are a long, long way from that today. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!wLZT!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F0f3e246a-6289-4c93-ae01-e8443a54766e_540x518.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!wLZT!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F0f3e246a-6289-4c93-ae01-e8443a54766e_540x518.png 424w, https://substackcdn.com/image/fetch/$s_!wLZT!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F0f3e246a-6289-4c93-ae01-e8443a54766e_540x518.png 848w, https://substackcdn.com/image/fetch/$s_!wLZT!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F0f3e246a-6289-4c93-ae01-e8443a54766e_540x518.png 1272w, https://substackcdn.com/image/fetch/$s_!wLZT!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F0f3e246a-6289-4c93-ae01-e8443a54766e_540x518.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/0f3e246a-6289-4c93-ae01-e8443a54766e_540x518.png" width="540" height="518" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/0f3e246a-6289-4c93-ae01-e8443a54766e_540x518.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":518,"width":540,"resizeWidth":null,"bytes":115709,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!wLZT!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F0f3e246a-6289-4c93-ae01-e8443a54766e_540x518.png 424w, https://substackcdn.com/image/fetch/$s_!wLZT!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F0f3e246a-6289-4c93-ae01-e8443a54766e_540x518.png 848w, https://substackcdn.com/image/fetch/$s_!wLZT!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F0f3e246a-6289-4c93-ae01-e8443a54766e_540x518.png 1272w, https://substackcdn.com/image/fetch/$s_!wLZT!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F0f3e246a-6289-4c93-ae01-e8443a54766e_540x518.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>What worries the World Bank is what happens if the Fed were to actually make use of its leeway to raise rates. Here too, the 1970s have lessons to teach. The World Bank’s worry is of a major emerging market and developing world debt crisis. </p><p>At that time, as the World Bank writes, </p><blockquote><p>Low global real interest rates and the rapid development of syndicated loan markets encouraged a surge in EMDE debt, especially in Latin America and many low-income countries (LICs), especially in Sub-Saharan Africa. In Latin America, total external debt rose by 12 percentage points of GDP over the course of the decade while, in LICs, it rose by 18 percentage points of GDP. Much of this debt was in foreign currency and short-term, as capital flowed from oil exporters to EMDEs with large fiscal and current account deficits (figure SF1.5.C).</p></blockquote><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!BNk1!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fe10dc4ca-153f-48d5-bac9-ab3762957d3c_526x484.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!BNk1!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fe10dc4ca-153f-48d5-bac9-ab3762957d3c_526x484.png 424w, https://substackcdn.com/image/fetch/$s_!BNk1!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fe10dc4ca-153f-48d5-bac9-ab3762957d3c_526x484.png 848w, https://substackcdn.com/image/fetch/$s_!BNk1!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fe10dc4ca-153f-48d5-bac9-ab3762957d3c_526x484.png 1272w, https://substackcdn.com/image/fetch/$s_!BNk1!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fe10dc4ca-153f-48d5-bac9-ab3762957d3c_526x484.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/e10dc4ca-153f-48d5-bac9-ab3762957d3c_526x484.png" width="526" height="484" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/e10dc4ca-153f-48d5-bac9-ab3762957d3c_526x484.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":484,"width":526,"resizeWidth":null,"bytes":100719,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!BNk1!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fe10dc4ca-153f-48d5-bac9-ab3762957d3c_526x484.png 424w, https://substackcdn.com/image/fetch/$s_!BNk1!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fe10dc4ca-153f-48d5-bac9-ab3762957d3c_526x484.png 848w, https://substackcdn.com/image/fetch/$s_!BNk1!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fe10dc4ca-153f-48d5-bac9-ab3762957d3c_526x484.png 1272w, https://substackcdn.com/image/fetch/$s_!BNk1!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fe10dc4ca-153f-48d5-bac9-ab3762957d3c_526x484.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>When the Volcker shock hit, it delivered a savage blow to emerging market borrowers, turning the 1980s into a decade of debt crises. The litany of financial crises in the 1990s was even worse, but now it was banking crises that were to the fore. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!jPm1!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F427c6f0c-4be1-49c5-8629-f466c64210b4_538x484.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!jPm1!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F427c6f0c-4be1-49c5-8629-f466c64210b4_538x484.png 424w, https://substackcdn.com/image/fetch/$s_!jPm1!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F427c6f0c-4be1-49c5-8629-f466c64210b4_538x484.png 848w, https://substackcdn.com/image/fetch/$s_!jPm1!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F427c6f0c-4be1-49c5-8629-f466c64210b4_538x484.png 1272w, https://substackcdn.com/image/fetch/$s_!jPm1!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F427c6f0c-4be1-49c5-8629-f466c64210b4_538x484.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/427c6f0c-4be1-49c5-8629-f466c64210b4_538x484.png" width="538" height="484" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/427c6f0c-4be1-49c5-8629-f466c64210b4_538x484.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":484,"width":538,"resizeWidth":null,"bytes":43026,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!jPm1!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F427c6f0c-4be1-49c5-8629-f466c64210b4_538x484.png 424w, https://substackcdn.com/image/fetch/$s_!jPm1!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F427c6f0c-4be1-49c5-8629-f466c64210b4_538x484.png 848w, https://substackcdn.com/image/fetch/$s_!jPm1!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F427c6f0c-4be1-49c5-8629-f466c64210b4_538x484.png 1272w, https://substackcdn.com/image/fetch/$s_!jPm1!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F427c6f0c-4be1-49c5-8629-f466c64210b4_538x484.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>Despite COVID the number of emerging market and low-income country debt crises has never returned to the 1980s peak. But debt accumulation in the last fifteen years has been dramatic and a larger share of borrowing is susceptible to variable interest rates. From a share of c. 20 percent in the early 2000s, the variable rate component has risen to 35 percent. </p><p>Even if dollar interest rates are still a long way away from imposing a real squeeze, the dollar itself poses problems.</p><p>In the 1970s following the collapse of the Bretton Woods system, the dollar devalued. By contrast, since the start of the Russian invasion of Ukraine, the dollar has strengthened sharply, exerting significant pressure on everyone who has borrowed in the currency, whether interest rate go up or not. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!8XI_!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff39bd164-cbca-469b-b4f6-9d51993ba5b3_536x510.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!8XI_!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff39bd164-cbca-469b-b4f6-9d51993ba5b3_536x510.png 424w, https://substackcdn.com/image/fetch/$s_!8XI_!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff39bd164-cbca-469b-b4f6-9d51993ba5b3_536x510.png 848w, https://substackcdn.com/image/fetch/$s_!8XI_!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff39bd164-cbca-469b-b4f6-9d51993ba5b3_536x510.png 1272w, https://substackcdn.com/image/fetch/$s_!8XI_!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff39bd164-cbca-469b-b4f6-9d51993ba5b3_536x510.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/f39bd164-cbca-469b-b4f6-9d51993ba5b3_536x510.png" width="536" height="510" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/f39bd164-cbca-469b-b4f6-9d51993ba5b3_536x510.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":510,"width":536,"resizeWidth":null,"bytes":124145,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!8XI_!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff39bd164-cbca-469b-b4f6-9d51993ba5b3_536x510.png 424w, https://substackcdn.com/image/fetch/$s_!8XI_!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff39bd164-cbca-469b-b4f6-9d51993ba5b3_536x510.png 848w, https://substackcdn.com/image/fetch/$s_!8XI_!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff39bd164-cbca-469b-b4f6-9d51993ba5b3_536x510.png 1272w, https://substackcdn.com/image/fetch/$s_!8XI_!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff39bd164-cbca-469b-b4f6-9d51993ba5b3_536x510.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>Those worst affected are emerging market and developing economies that are also commodity importers. They are being squeezed both by the appreciation of the dollar and the rise of commodity prices. And the bond markets are reacting. The spread paid by EMDE sovereigns that are commodity importers have surged by almost 250 basis points. Commodity exporters have seen a basis-point increase in their spreads of less than 100 points.</p><p>As far as the 1970s analogy in the advanced economies is concerned, the general impression conveyed by the World Bank’s analysis is that the similarities are more superficial than real. The World Bank expects global CPI inflation to fall back below 3 percent in 2023. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!9nyb!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7d5a0cf6-6eaa-40cd-8e26-6be349a50b5f_538x500.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!9nyb!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7d5a0cf6-6eaa-40cd-8e26-6be349a50b5f_538x500.png 424w, https://substackcdn.com/image/fetch/$s_!9nyb!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7d5a0cf6-6eaa-40cd-8e26-6be349a50b5f_538x500.png 848w, https://substackcdn.com/image/fetch/$s_!9nyb!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7d5a0cf6-6eaa-40cd-8e26-6be349a50b5f_538x500.png 1272w, https://substackcdn.com/image/fetch/$s_!9nyb!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7d5a0cf6-6eaa-40cd-8e26-6be349a50b5f_538x500.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/7d5a0cf6-6eaa-40cd-8e26-6be349a50b5f_538x500.png" width="538" height="500" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/7d5a0cf6-6eaa-40cd-8e26-6be349a50b5f_538x500.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":500,"width":538,"resizeWidth":null,"bytes":128209,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!9nyb!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7d5a0cf6-6eaa-40cd-8e26-6be349a50b5f_538x500.png 424w, https://substackcdn.com/image/fetch/$s_!9nyb!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7d5a0cf6-6eaa-40cd-8e26-6be349a50b5f_538x500.png 848w, https://substackcdn.com/image/fetch/$s_!9nyb!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7d5a0cf6-6eaa-40cd-8e26-6be349a50b5f_538x500.png 1272w, https://substackcdn.com/image/fetch/$s_!9nyb!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F7d5a0cf6-6eaa-40cd-8e26-6be349a50b5f_538x500.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>But the real question is what price will the world economy pay? As far as emerging market and developing market debt is concerned, the burden is far larger than it was in the 1970s. So too, of course, is the sophistication of their governance institutions. What Daniela Gabor calls the “<a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/dech.12645">Wall Street consensus</a>” has sunk deep roots. The much-feared global COVID debt crisis of 2020 failed to arrive. Instead the accumulation of new debt went on. We may get lucky. There may be no tapering disaster in 2022-2024. But the World Bank alerts us to where the most serious risks lie. Along with the distributional question in rich countries, the main focus should be on ensuring that the tightening in the global dollar system does not impose intolerable pressure on its weakest links around the world. </p><p>***</p><p>I love putting out Chartbook. I am particularly pleased that it goes out for free to thousands of subscribers around the world. But what sustains the effort are voluntary subscriptions from paying supporters. If you are enjoying the newsletter and would like to join the group of supporters, press this button and pick one of the three options:</p><p class="button-wrapper" data-attrs="{"url":"https://adamtooze.substack.com/subscribe?","text":"Subscribe now","action":null,"class":null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://adamtooze.substack.com/subscribe?"><span>Subscribe now</span></a></p><p></p><!--
{
"post_id": "62337996.chartbook-133-under-the-hood-of-the",
"post_date": "2022-07-03T14:05:30.425Z",
"is_published": true,
"email_sent_at": "2022-07-03T14:05:30.586Z",
"inbox_sent_at": "2022-07-03T14:05:30.586Z",
"type": "newsletter",
"audience": "everyone",
"title": "Chartbook #133 Under the hood of the power dynamics of inflation",
"subtitle": ""
}
-->
<p class="button-wrapper" data-attrs="{"url":"https://adamtooze.substack.com/subscribe?","text":"Subscribe now","action":null,"class":null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://adamtooze.substack.com/subscribe?"><span>Subscribe now</span></a></p><p>In 2021-2022 we are living through something very unusual - a historic break, a sudden shift from a low inflation regime, that had persisted for several decades, to a moment of much higher inflation. </p><p>Amongst those who fear inflation, it is raising deep and concerning questions. Might we be entering a new era, a new regime of higher inflation? What, previously, anchored the regime of low inflation that we have for so many decades taken for granted? Looking back, the last time we overcome rapid inflation - in the late 1970s and early 1980s - how was it that the new regime of lower inflation was institutionalized?</p><p>What is fascinating is that in answering these questions, even at a technical level in reports by an agency like the <a href="https://www.bis.org/publ/arpdf/ar2022e.pdf">Bank of International Settlements</a>, the underlying regime of power is thematized. In a remarkably unselfconscious way, the managers of the system articulate their preference for a particular configuration, or non-configuration of social forces. </p><p>An inflation regime, as the BIS defines it, is one of sustained and general price increases. This cannot be a one-round affair. It requires successive price and wage adjustment. It can only happen if you have a wage-price spiral, with both price and wage setters driving up their demands. </p><blockquote><p>Sustained inflation ultimately involves a self-reinforcing feedback between price and wage increases – so-called wage-price spirals. Changes in individual prices can broaden into aggregate inflation. And they can also erode real wages and profit margins for very long spells. But, ultimately, they cannot be self-sustaining without feedback between prices and wages: profit margins and real wages cannot fall indefinitely. So, beyond the important impact of aggregate demand conditions on wage- and price-setting, a key question is how changes in relative prices that pass through to the aggregate price index (“first-round effects”) can trigger feedback between price and wage increases (“second-round effects”).</p></blockquote><p>If this is what defines inflation, what anchors a low-inflation regime is a situation in which that reciprocal action cannot take hold. Either, neither price-setters (corporate capital) or workers have the power to set prices, or only one side does, so that you can have a first round price shock, but no second-round reaction. </p><p>The BIS is careful to frame its argument symmetrically. It treats pricing power and wage-setting power as dual challenges to inflation-control. What it does not comment on are the inequality implications. It does not remark on the fact that the actually existing low-inflation regime of the period since the 1980s opened the door to huge inequality. Nor does it address the question of power as such. Allowing that inflation-control is important, it is, however, only one possible consideration. Independently of the question of inflation-control, what kind of order of social and economic power do we actually prefer? </p><p>The BIS’s look under the bonnet of inflation is extraordinarily illuminating. </p><blockquote><p>Low-inflation regimes turn out to be very different from high-inflation ones.1 When inflation settles at a low level, it mainly reflects changes in sector-specific prices and exhibits certain self-equilibrating properties. Changes in inflation become less sensitive to relative price shocks, and wage and price dynamics are less closely linked. Moreover, there is evidence that the impact of changes in the monetary policy stance becomes less powerful. Transitions from low- to high-inflation regimes tend to be self-reinforcing. As inflation rises, it naturally becomes more of a focal point for agents and induces behavioural changes that tend to entrench it, notably by influencing wage and price dynamics. This puts a premium on better understanding how transitions work in order to be able to identify them early enough as events unfold. The transition from a low- to a high-inflation regime in the late 1960s and early 1970s illustrates some of the possible forces at play. These include large and persistent relative price increases – notably oil – in a context of strong cyclical demand and in an environment structurally conducive to wage-price spirals, ie high pricing power of labour and firms coupled with the loss of the monetary anchor provided by the Bretton Woods system. Monetary policy plays a key role in establishing and hardwiring a low-inflation regime and in avoiding transitions to a high-inflation one. Once a low-inflation regime is established, monetary policy can afford to be more flexible and tolerate more persistent, if moderate, deviations of inflation from targets. Having gained precious credibility, it can reap the benefits. At the same time, monetary policy must ensure that the regime is not jeopardised. It is one thing to tolerate moderate deviations from point targets; it is quite another to put the system’s self-equilibrating properties to the test. The costs of bringing inflation back under control can be very high. Calibrating policy to prevent transitions is especially challenging.</p></blockquote><p>As in the 1980s inflation fell to persistently lower levels, it also became less volatile. And this was due not to lower volatility in the individual price series, but rather a decline in the correlation between them. General (macro)economic conditions mattered less and less. What came to the fore instead were particular (microeconomic) market forces. </p><p>Insofar as the overall index continued to fluctuate, it was mainly driven by idiosyncratic shocks operating independently in particular sectors. The importance of the common factor operating across all components of the index diminished proportionally. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!EtxH!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F201672e7-5658-40b1-9532-376e016f5226_1038x1018.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!EtxH!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F201672e7-5658-40b1-9532-376e016f5226_1038x1018.png 424w, https://substackcdn.com/image/fetch/$s_!EtxH!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F201672e7-5658-40b1-9532-376e016f5226_1038x1018.png 848w, https://substackcdn.com/image/fetch/$s_!EtxH!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F201672e7-5658-40b1-9532-376e016f5226_1038x1018.png 1272w, https://substackcdn.com/image/fetch/$s_!EtxH!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F201672e7-5658-40b1-9532-376e016f5226_1038x1018.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/201672e7-5658-40b1-9532-376e016f5226_1038x1018.png" width="1038" height="1018" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/201672e7-5658-40b1-9532-376e016f5226_1038x1018.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":1018,"width":1038,"resizeWidth":null,"bytes":285987,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!EtxH!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F201672e7-5658-40b1-9532-376e016f5226_1038x1018.png 424w, https://substackcdn.com/image/fetch/$s_!EtxH!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F201672e7-5658-40b1-9532-376e016f5226_1038x1018.png 848w, https://substackcdn.com/image/fetch/$s_!EtxH!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F201672e7-5658-40b1-9532-376e016f5226_1038x1018.png 1272w, https://substackcdn.com/image/fetch/$s_!EtxH!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F201672e7-5658-40b1-9532-376e016f5226_1038x1018.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p class="button-wrapper" data-attrs="{"url":"https://adamtooze.substack.com/subscribe?","text":"Subscribe now","action":null,"class":null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://adamtooze.substack.com/subscribe?"><span>Subscribe now</span></a></p><p>As inflation was squeezed out of the system, the remaining price movements became more and more microeconomic in origin. Interactions between prices mattered less and less. </p><p>Given the BIS’s definition of inflation as a sustained race between wage and price-setters, this shift must ultimately be rationalized in terms of the operation of the labour market. What changed to mean that wages and prices were no longer tightly coupled together? </p><blockquote><p>The evolution of labour markets vividly illustrates how broad and deep the influence of structural forces can be. Labour markets have seen major structural changes since the Great Inflation of the 1970s. Their net effect has been to reduce the pricing power of labour. This secular decline reflects many factors, including a declining role of the public sector in setting wages; dwindling unionisation; a wave of labour market deregulation; the gradual opening of markets due to globalisation; and demographics. For instance, it is hard to imagine that the bargaining power of labour, especially in advanced economies, could have remained immune to the entry of large numbers of (predominantly low-wage) workers into the the global trading system. China and former members of the Soviet bloc are the most prominent examples. A quickening of technological change is yet another possible factor, in this case increasing the competition between labour and capital. Measuring pricing power is not straightforward. For example, it may not be the actual entry of firms that determines their pricing power but the threat of entry (“contestability”). Similarly, the actual extent to which jobs are relocated to foreign countries may be less important than the threat thereof. Again, labour markets can help illustrate the point. One possible, albeit imperfect, indicator of labour’s decreasing structural pricing power is the secular decline in the degree of centralisation of wage negotiations (Graph 5.A). Another is the reduction in the number of countries adopting binding norms in the coordination of wage-setting (Graph 5.B).</p></blockquote><p>The BIS provides this beautiful but ominous set of graphs to demonstrate the retreat of collective bargaining. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!Ci1M!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F1ad49cfc-4f82-42a2-a335-92cb75937342_1658x1134.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!Ci1M!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F1ad49cfc-4f82-42a2-a335-92cb75937342_1658x1134.png 424w, https://substackcdn.com/image/fetch/$s_!Ci1M!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F1ad49cfc-4f82-42a2-a335-92cb75937342_1658x1134.png 848w, https://substackcdn.com/image/fetch/$s_!Ci1M!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F1ad49cfc-4f82-42a2-a335-92cb75937342_1658x1134.png 1272w, https://substackcdn.com/image/fetch/$s_!Ci1M!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F1ad49cfc-4f82-42a2-a335-92cb75937342_1658x1134.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/1ad49cfc-4f82-42a2-a335-92cb75937342_1658x1134.png" width="1456" height="996" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/1ad49cfc-4f82-42a2-a335-92cb75937342_1658x1134.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":996,"width":1456,"resizeWidth":null,"bytes":418579,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!Ci1M!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F1ad49cfc-4f82-42a2-a335-92cb75937342_1658x1134.png 424w, https://substackcdn.com/image/fetch/$s_!Ci1M!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F1ad49cfc-4f82-42a2-a335-92cb75937342_1658x1134.png 848w, https://substackcdn.com/image/fetch/$s_!Ci1M!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F1ad49cfc-4f82-42a2-a335-92cb75937342_1658x1134.png 1272w, https://substackcdn.com/image/fetch/$s_!Ci1M!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F1ad49cfc-4f82-42a2-a335-92cb75937342_1658x1134.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>As the BIS explicitly recognizes, the collective mobilization and demobilization of organized labour is not independent of underlying inflationary conditions and expectations but determined by them. </p><blockquote><p>if sufficiently high and persistent, inflation will influence the structural features of wage- and price-setting. The higher the inflation rate, the greater the incentive for workers to unionise, and for wage negotiations to be centralised, as the inflation rate acts as a stronger focal point.19 And, the more persistent the inflation rate, the greater the incentive to index wages and, more generally, to reduce the length of contracts that are fixed in nominal terms.20 These forces are amplified by the stylised fact that higher inflation rates tend to go hand in hand with higher volatility and hence uncertainty.</p></blockquote><p>Conversely, of course, once a low-inflation regime takes hold all of these effects go into reverse. The lower the inflation rate the lower the incentivize to unionize, to insist on centralized collective bargaining and to agree to extended binding contracts. </p><p>The inflationary regime shapes the labour market institutions and those labour market institutions shape the inflationary regime. </p><blockquote><p>When workers’ bargaining power is high, the cyclical sensitivity of inflation to the unemployment gap increases, reflecting greater pricing power for any given degree of tightness in labour markets.15 Moreover, workers are better placed to successfully negotiate higher wages to reap the benefits of increases in labour productivity as well as to recoup losses in purchasing power due to past inflation … once wage-price spirals set in, they develop an inertia that is not easy to break. Expectations of persistent inflation become embedded in labour contracts and wage negotiations, requiring a larger reduction in aggregate demand, and hence higher unemployment, to break the back of persistent inflation. Monetary policy’s task becomes much harder. This is true not only from a technical standpoint, but also from a political one. A broad political consensus that inflation must be brought back under control would greatly help the central bank’s task. For example, it could be instrumental in inducing trade unions to accept the abandonment of indexation clauses, as it did in the 1980s.27 </p></blockquote><p>And this effort in persuasion had real effects. As the BIS demonstrates, since the 1990s the sensitivity of wages to past price increases has sharply declined. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!Mv22!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F39186a34-840d-4ec9-8d2e-2c640a0c3fca_1010x984.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!Mv22!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F39186a34-840d-4ec9-8d2e-2c640a0c3fca_1010x984.png 424w, https://substackcdn.com/image/fetch/$s_!Mv22!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F39186a34-840d-4ec9-8d2e-2c640a0c3fca_1010x984.png 848w, https://substackcdn.com/image/fetch/$s_!Mv22!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F39186a34-840d-4ec9-8d2e-2c640a0c3fca_1010x984.png 1272w, https://substackcdn.com/image/fetch/$s_!Mv22!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F39186a34-840d-4ec9-8d2e-2c640a0c3fca_1010x984.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/39186a34-840d-4ec9-8d2e-2c640a0c3fca_1010x984.png" width="589" height="573.8376237623762" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/39186a34-840d-4ec9-8d2e-2c640a0c3fca_1010x984.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":984,"width":1010,"resizeWidth":589,"bytes":129175,"alt":"","title":"","type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" title="" srcset="https://substackcdn.com/image/fetch/$s_!Mv22!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F39186a34-840d-4ec9-8d2e-2c640a0c3fca_1010x984.png 424w, https://substackcdn.com/image/fetch/$s_!Mv22!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F39186a34-840d-4ec9-8d2e-2c640a0c3fca_1010x984.png 848w, https://substackcdn.com/image/fetch/$s_!Mv22!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F39186a34-840d-4ec9-8d2e-2c640a0c3fca_1010x984.png 1272w, https://substackcdn.com/image/fetch/$s_!Mv22!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F39186a34-840d-4ec9-8d2e-2c640a0c3fca_1010x984.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>At the same time, across advanced economies price increases have become much less sensitive to wage pressure. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!QlnR!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F5228d9c1-d9b7-4a13-9962-98e56fd1e0a2_692x1036.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!QlnR!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F5228d9c1-d9b7-4a13-9962-98e56fd1e0a2_692x1036.png 424w, https://substackcdn.com/image/fetch/$s_!QlnR!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F5228d9c1-d9b7-4a13-9962-98e56fd1e0a2_692x1036.png 848w, https://substackcdn.com/image/fetch/$s_!QlnR!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F5228d9c1-d9b7-4a13-9962-98e56fd1e0a2_692x1036.png 1272w, https://substackcdn.com/image/fetch/$s_!QlnR!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F5228d9c1-d9b7-4a13-9962-98e56fd1e0a2_692x1036.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/5228d9c1-d9b7-4a13-9962-98e56fd1e0a2_692x1036.png" width="692" height="1036" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/5228d9c1-d9b7-4a13-9962-98e56fd1e0a2_692x1036.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":1036,"width":692,"resizeWidth":null,"bytes":112753,"alt":"","title":"","type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" title="" srcset="https://substackcdn.com/image/fetch/$s_!QlnR!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F5228d9c1-d9b7-4a13-9962-98e56fd1e0a2_692x1036.png 424w, https://substackcdn.com/image/fetch/$s_!QlnR!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F5228d9c1-d9b7-4a13-9962-98e56fd1e0a2_692x1036.png 848w, https://substackcdn.com/image/fetch/$s_!QlnR!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F5228d9c1-d9b7-4a13-9962-98e56fd1e0a2_692x1036.png 1272w, https://substackcdn.com/image/fetch/$s_!QlnR!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F5228d9c1-d9b7-4a13-9962-98e56fd1e0a2_692x1036.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>This entire analysis is lucid and empirically rich. But what is also remarkable is how unreflected it with regard to broader trade-offs. The BIS, writing from the central bankers point of view, clearly prefers a situation that is more manageable, in other words a low-inflation regime in which labour (along with other price-setters) is disempowered. </p><p>Though it does not say so in so many words, de facto, in the current era, the first round shock in an inflationary process comes from the side of the price of goods. So preferring to dampen second round reactions effectively implies favoring producers over workers. </p><p>This becomes particularly evident when the <em>Annual Economic Review</em> turns to the current inflationary surge. </p><p>On its face, according to the BIS’s own definition, our current condition does not actually meet the criteria of a sustained inflation. Why? Because the price surge is too one-sided. It has been driven by costs, demand pressure and mark ups. Real wages have fallen sharply. There is very little evidence of a sustainable wage price spiral in either the US or Europe. So there are first round effects, but no more than a muted second round reactions. </p><p>What worries the BIS are the signs that this is changing. What worries the BIS are not just much higher inflation rates, but the signs that the price system is beginning to move, once again, as though it were a single system, moved by a common orientation towards (higher) inflation. Since the summer of 2021, sectoral spillovers have increased and sectoral price changes have become more similar. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!9i62!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc500a0dd-2c36-4175-aa63-e40fbd9a2a0c_1274x780.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!9i62!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc500a0dd-2c36-4175-aa63-e40fbd9a2a0c_1274x780.png 424w, https://substackcdn.com/image/fetch/$s_!9i62!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc500a0dd-2c36-4175-aa63-e40fbd9a2a0c_1274x780.png 848w, https://substackcdn.com/image/fetch/$s_!9i62!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc500a0dd-2c36-4175-aa63-e40fbd9a2a0c_1274x780.png 1272w, https://substackcdn.com/image/fetch/$s_!9i62!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc500a0dd-2c36-4175-aa63-e40fbd9a2a0c_1274x780.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/c500a0dd-2c36-4175-aa63-e40fbd9a2a0c_1274x780.png" width="1274" height="780" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/c500a0dd-2c36-4175-aa63-e40fbd9a2a0c_1274x780.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":780,"width":1274,"resizeWidth":null,"bytes":207189,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!9i62!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc500a0dd-2c36-4175-aa63-e40fbd9a2a0c_1274x780.png 424w, https://substackcdn.com/image/fetch/$s_!9i62!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc500a0dd-2c36-4175-aa63-e40fbd9a2a0c_1274x780.png 848w, https://substackcdn.com/image/fetch/$s_!9i62!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc500a0dd-2c36-4175-aa63-e40fbd9a2a0c_1274x780.png 1272w, https://substackcdn.com/image/fetch/$s_!9i62!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc500a0dd-2c36-4175-aa63-e40fbd9a2a0c_1274x780.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>And what really worries the BIS is that this may soon spillover from the price of goods and services to wage-setting. As it puts it: </p><blockquote><p>Ultimately, the most reliable warning indicator is signs of second-round effects, with wages responding to price pressures, and vice versa. These can be especially worrying if they go hand in hand with incipient changes in inflation psychology. Examples include demands for greater centralisation of wage negotiations or indexation clauses, or surveys indicating that firms have regained pricing power, as part of broader changes in the competitive environment, as observed in some countries recently (Chapter I).</p></blockquote><p>The question that the BIS does not pose, is the distributional one. Clearly, if your only aim is inflation control, stopping “second round effects” must be your top priority. And the emergence of new social arrangements that institutionalize those second-round effects suggests a regime shift. But what are the distributional effects if there is no second-round response and no institutional change? Who wins and who loses? </p><p>Is the fight against inflation good for everyone? </p><p>The BIS may be of the view that on welfare and social justice grounds, low-inflation regimes dominate higher inflation regimes. But it nowhere spells out that argument. If that assumption does not hold, then favoring a low-inflation regime implies a distributional and a political choice. </p><p>And, more fundamentally, to view social and economic power, strictly from the point of view of price and wage setting is reductive. Indeed, it is reductive to view those institutions simply from the point of view of distribution. </p><p>Institutions of collective bargaining are not merely mechanisms for wage and price setting. One may value collective bargaining institutions in their own right, as complex articulations of social reality and as places where solidarity finds organized expression. One may value them as expressions of alternative visions of social balance. Up to the 1980s, organized labour was the backbone of social democratic politics and a partner of liberalism in the fashioning of democracy in capitalist societies. </p><p>Trade unions and structures of collective bargaining at all levels mattered not only because they counterbalanced elite power, but also because they gave intelligent and articulate expression to working-class grievances. They framed inequality in terms of social realities rather than imaginary enemies. Historically they did so in direct opposition to other forms of popular political mobilization - like fascism, for example. In recent decades it is not implausible to suggests that the rise of working-class support for nationalist populism is directly related to the decay of those collective institutions of labour organization. </p><p>Beyond the question of inflation-control, what kind of political economy do we want? One in which there are individual workers, firms, markets and representing the collective good is the prerogative of the central bank? Or are there other regimes that we might find preferable, in which individual, group and collective interests be articulated in more complex, pluralistic arrangements? Liberal corporations was one such model. That is the model that was swept away in the move to the low-inflation regime since the 1980s. </p><p>Would that make the politics of price-setting and price control more complicated, more “political” and more contentious? Yes it probably would. But any technocrat who celebrates the decline of the bargaining power of organized labour because it makes inflation-control easier, should not complain about the rise of troublesome populism! </p><p>*****</p><p>I love writing Chartbook and I am particularly pleased that it goes out free to thousands of readers all over the world. But it takes a lot of work and what sustains the effort is the support of paying subscribers. If you appreciate the newsletter and can afford a subscription, please hit the button and pick one of the three options.</p><p class="button-wrapper" data-attrs="{"url":"https://adamtooze.substack.com/subscribe?","text":"Subscribe now","action":null,"class":null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://adamtooze.substack.com/subscribe?"><span>Subscribe now</span></a></p><p></p><!--
{
"post_id": "62355744.chartbook-134-inflation-as-an-emergent",
"post_date": "2022-07-04T13:40:46.071Z",
"is_published": true,
"email_sent_at": "2022-07-04T13:40:46.441Z",
"inbox_sent_at": "2022-07-04T13:40:46.441Z",
"type": "newsletter",
"audience": "everyone",
"title": "Chartbook #134: Inflation as an emergent macroeconomic phenomenon ",
"subtitle": ""
}
-->
<p class="button-wrapper" data-attrs="{"url":"https://adamtooze.substack.com/subscribe?","text":"Subscribe now","action":null,"class":null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://adamtooze.substack.com/subscribe?"><span>Subscribe now</span></a></p><p>The current situation of unexpected and rapid price increases, has forced us to define more clearly what is inflation. In a nominalist vein you could say simply that inflation is whatever the CPI or some other index says it is. And for everyday purposes it is almost perverse to refuse this simple answer.</p><p>But from an economic point view, as the BIS puts it, in a remarkable section of its recent <em><a href="https://www.bis.org/publ/arpdf/ar2022e.pdf">Annual Economic Review</a></em>, we need to make a crucial distinction: </p><blockquote><p>The distinction between relative price changes and underlying inflation is critical. Relative price changes reflect those in individual items, all else equal. This may or may not be related to underlying inflation, ie a broader-based and largely synchronous increase in the prices of goods and services that erodes the value of money and devalues the “unit of account” over time.</p></blockquote><p>There is a lot to unpack in this crucial passage. We are in a state of inflation when all prices - both those for goods and labour (i.e. wages) - are going up, broadly speaking in parallel. If that happens, since all prices are moving, the only fixed point from which to measure the change is that offered by the unit of account, i.e. the unit of money. This is the deeper meaning behind Friedman’s famous comment that inflation is always and everywhere a monetary phenomenon. </p><p>Price movements can do many things and have many meanings and effects. But those price movements that qualify as properly inflationary are those which collectively shift the ratio in which “all goods and services” exchange with the unit of account. </p><p>What the BIS shows in its remarkable chapter on inflation in the latest <em>Annual Economic Review</em> is that in this strict sense, in the decades since the 1990s when price indices were growing at very low rates, often well below 2 percent and in Japan even declining, not only was “inflation” low, but in a strict sense, price movements no longer qualified as inflation at all (fast or slow). Price movements were increasingly uncorrelated with each other and crucial connections e.g. between energy prices and the general index became much less significant in statistical terms. </p><p>Inflation - the movement in the general price level - was not just low. It would be better to say that inflation had attenuated to the point of irrelevance. It was no longer a reference point. Indeed, successive Fed chairs, Paul Volcker and Alan Greenspan adopted defined price stability precisely in these terms: </p><p>“a situation in which expectations of generally rising (or falling) prices over a considerable period are not a pervasive influence on economic and financial behavior.”</p><p>The macroeconomic dimension of prices and money “in general” was no longer relevant. The price changes that were observed were interpreted in microeconomic terms i.e. as shifting relativities between goods and services rather than being indicative of the general state of the economy or society. The general price level, one of the basic macroeconomic variables, was no longer a relevant reference point. </p><p>By contrast, an inflationary period is one in which issue of the general price level, as captured by an index, or perhaps the exchange rate, comes to dominate all other considerations. What matters, in the first instance, are not relativities, but keeping up with the overall level. In this state, the macroeconomy emerges from irrelevance, to be the dominant, overriding concern for all decision makers. </p><p>When prices rise faster, we miss the point if we simply say that inflation is higher. Reading the BIS report between the lines, it would be better to say that as rate of price increases increases, "inflation happens". We enter an inflationary state. </p><p>To survive, investors have to shift from being stock pickers, to macro bond investors. </p><p>What is remarkable about the BIS’s recent report is that is able to show in extraordinarily rich empirical detail how the emergence and then disappearance of inflation as a macroeconomic phenomenon played out over the last half century. </p><p>One crucial index of this process is simply how far price changes begin to resemble each other. In an non-inflationary situation price changes are idiosyncratic, driven by supply factors, particular business decision or bargaining strategies by trade unions. As inflation takes over, that changes:</p><blockquote><p>the degree to which the general price level becomes relevant for individual decisions increases with the level of inflation. When inflation rises, price changes become more similar</p></blockquote><p>This effect can be achieved through explicit social agreements and contracts e.g. price indexation. But the BIS’s data analysis allows them to show this effect in operation across price-setting more generally. In Advanced Economies, once inflation rises to around 5 percent, the similarity of price-setting surges. For emerging market economies, with inflation experiences that go as a high as 25 percent, the effect is even more pronounced.</p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!RJvJ!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8b1a5a8-9b0c-4442-b71c-71ac69c6fffb_1678x938.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!RJvJ!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8b1a5a8-9b0c-4442-b71c-71ac69c6fffb_1678x938.png 424w, https://substackcdn.com/image/fetch/$s_!RJvJ!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8b1a5a8-9b0c-4442-b71c-71ac69c6fffb_1678x938.png 848w, https://substackcdn.com/image/fetch/$s_!RJvJ!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8b1a5a8-9b0c-4442-b71c-71ac69c6fffb_1678x938.png 1272w, https://substackcdn.com/image/fetch/$s_!RJvJ!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8b1a5a8-9b0c-4442-b71c-71ac69c6fffb_1678x938.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/b8b1a5a8-9b0c-4442-b71c-71ac69c6fffb_1678x938.png" width="1456" height="814" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/b8b1a5a8-9b0c-4442-b71c-71ac69c6fffb_1678x938.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":814,"width":1456,"resizeWidth":null,"bytes":316439,"alt":"","title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" title="" srcset="https://substackcdn.com/image/fetch/$s_!RJvJ!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8b1a5a8-9b0c-4442-b71c-71ac69c6fffb_1678x938.png 424w, https://substackcdn.com/image/fetch/$s_!RJvJ!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8b1a5a8-9b0c-4442-b71c-71ac69c6fffb_1678x938.png 848w, https://substackcdn.com/image/fetch/$s_!RJvJ!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8b1a5a8-9b0c-4442-b71c-71ac69c6fffb_1678x938.png 1272w, https://substackcdn.com/image/fetch/$s_!RJvJ!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fb8b1a5a8-9b0c-4442-b71c-71ac69c6fffb_1678x938.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>As inflation becomes the dominant concern, what we see is the emergence of key prices that help actors to orientate themselves in an increasingly confusing scene. Energy prices and exchange rates, for example, have a far larger influence on the general price index in high inflationary regimes than in low inflation regimes. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!jCx6!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F9a1ee793-ead0-410c-8b98-08471edabf68_1722x1186.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!jCx6!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F9a1ee793-ead0-410c-8b98-08471edabf68_1722x1186.png 424w, https://substackcdn.com/image/fetch/$s_!jCx6!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F9a1ee793-ead0-410c-8b98-08471edabf68_1722x1186.png 848w, https://substackcdn.com/image/fetch/$s_!jCx6!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F9a1ee793-ead0-410c-8b98-08471edabf68_1722x1186.png 1272w, https://substackcdn.com/image/fetch/$s_!jCx6!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F9a1ee793-ead0-410c-8b98-08471edabf68_1722x1186.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/9a1ee793-ead0-410c-8b98-08471edabf68_1722x1186.png" width="1456" height="1003" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/9a1ee793-ead0-410c-8b98-08471edabf68_1722x1186.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":1003,"width":1456,"resizeWidth":null,"bytes":420304,"alt":"","title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" title="" srcset="https://substackcdn.com/image/fetch/$s_!jCx6!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F9a1ee793-ead0-410c-8b98-08471edabf68_1722x1186.png 424w, https://substackcdn.com/image/fetch/$s_!jCx6!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F9a1ee793-ead0-410c-8b98-08471edabf68_1722x1186.png 848w, https://substackcdn.com/image/fetch/$s_!jCx6!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F9a1ee793-ead0-410c-8b98-08471edabf68_1722x1186.png 1272w, https://substackcdn.com/image/fetch/$s_!jCx6!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F9a1ee793-ead0-410c-8b98-08471edabf68_1722x1186.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>But one does not have to confine oneself to examining just the headline numbers like oil and the dollar exchange rate. What the BIS has constructed is a general measure of the degree to which shocks in the price of one sector affect the rest of the economy. </p><blockquote><p>Examining how shocks to prices in certain sectors transmit and propagate to others can help shed light on how individual price changes are able to morph into broad-based inflation. One relatively simple way to do this is to look at how shocks affecting certain sectoral price indices affect the variability of prices in other sectors within a certain horizon.</p></blockquote><blockquote><p>The key ingredient for the construction of the spillover indices is the generalised forecast error variance decomposition (GFEVD) matrix.2 This measures the share of the variance of each PCE sector (the rows) explained by shocks to each of the sectors (the columns).</p></blockquote><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!0KGe!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F436be74d-5781-42f9-a38f-c8c35a7dba94_1444x946.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!0KGe!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F436be74d-5781-42f9-a38f-c8c35a7dba94_1444x946.png 424w, https://substackcdn.com/image/fetch/$s_!0KGe!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F436be74d-5781-42f9-a38f-c8c35a7dba94_1444x946.png 848w, https://substackcdn.com/image/fetch/$s_!0KGe!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F436be74d-5781-42f9-a38f-c8c35a7dba94_1444x946.png 1272w, https://substackcdn.com/image/fetch/$s_!0KGe!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F436be74d-5781-42f9-a38f-c8c35a7dba94_1444x946.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/436be74d-5781-42f9-a38f-c8c35a7dba94_1444x946.png" width="1444" height="946" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/436be74d-5781-42f9-a38f-c8c35a7dba94_1444x946.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":946,"width":1444,"resizeWidth":null,"bytes":320419,"alt":"","title":"","type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" title="" srcset="https://substackcdn.com/image/fetch/$s_!0KGe!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F436be74d-5781-42f9-a38f-c8c35a7dba94_1444x946.png 424w, https://substackcdn.com/image/fetch/$s_!0KGe!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F436be74d-5781-42f9-a38f-c8c35a7dba94_1444x946.png 848w, https://substackcdn.com/image/fetch/$s_!0KGe!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F436be74d-5781-42f9-a38f-c8c35a7dba94_1444x946.png 1272w, https://substackcdn.com/image/fetch/$s_!0KGe!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F436be74d-5781-42f9-a38f-c8c35a7dba94_1444x946.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>Apart from the fascinating sectoral details, what the comparison of the matrices from the high-inflation period (on the left) and the low-inflation period (on the right) shows is how inter-sectoral price linkages become attenuated as inflation falls. The matrix on the left has fewer dark-red cells. </p><p>Higher inflation per force constitutes “an economy” that moves as an articulated organism, with ripple effects running from one sector to the other. As inflation fell from the late 1980s onwards, those connections became progressively attenuated. </p><p>For ease of reference this result can also be broken down by particular index components. In the period 1986-2019 the key sectors no longer delivered the kind of shocks that they did in the 1965 to 1985 period, the period of the “great inflation”. Conversely, price movements which before 1986 were heavily influenced by shocks in other sectors, became less and less susceptible. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!WsAO!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3e33b305-3816-4d07-8d29-06d8f20d29d2_1470x850.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!WsAO!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3e33b305-3816-4d07-8d29-06d8f20d29d2_1470x850.png 424w, https://substackcdn.com/image/fetch/$s_!WsAO!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3e33b305-3816-4d07-8d29-06d8f20d29d2_1470x850.png 848w, https://substackcdn.com/image/fetch/$s_!WsAO!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3e33b305-3816-4d07-8d29-06d8f20d29d2_1470x850.png 1272w, https://substackcdn.com/image/fetch/$s_!WsAO!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3e33b305-3816-4d07-8d29-06d8f20d29d2_1470x850.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/3e33b305-3816-4d07-8d29-06d8f20d29d2_1470x850.png" width="1456" height="842" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/3e33b305-3816-4d07-8d29-06d8f20d29d2_1470x850.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":842,"width":1456,"resizeWidth":null,"bytes":241539,"alt":"","title":"","type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" title="" srcset="https://substackcdn.com/image/fetch/$s_!WsAO!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3e33b305-3816-4d07-8d29-06d8f20d29d2_1470x850.png 424w, https://substackcdn.com/image/fetch/$s_!WsAO!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3e33b305-3816-4d07-8d29-06d8f20d29d2_1470x850.png 848w, https://substackcdn.com/image/fetch/$s_!WsAO!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3e33b305-3816-4d07-8d29-06d8f20d29d2_1470x850.png 1272w, https://substackcdn.com/image/fetch/$s_!WsAO!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3e33b305-3816-4d07-8d29-06d8f20d29d2_1470x850.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>Though the BIS does not apply a political economy lens to these numbers, it would be possible to do so. The question is who has price-setting power and who does not. Who are price-takers. Because the matrices are based on the PCE price index they do not include wages, but, as I discussed in <a href="https://adamtooze.substack.com/p/chartbook-133-under-the-hood-of-the">Chartbook #13</a>3, the BIS has shown how in an inflationary regime, wages are more responsible to prices and conversely prices are more responsive to wage pressure. </p><p>What worries the BIS right now is that even in the short space of time since the summer of 2021, as prices have surged, there are signs that what we are witnessing is something akin to a true inflationary process of correlated, spillover-driven, imitative price changes. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!fTGu!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3942482-5b2b-4d6a-90b5-25d8a1ab0211_1444x884.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!fTGu!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3942482-5b2b-4d6a-90b5-25d8a1ab0211_1444x884.png 424w, https://substackcdn.com/image/fetch/$s_!fTGu!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3942482-5b2b-4d6a-90b5-25d8a1ab0211_1444x884.png 848w, https://substackcdn.com/image/fetch/$s_!fTGu!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3942482-5b2b-4d6a-90b5-25d8a1ab0211_1444x884.png 1272w, https://substackcdn.com/image/fetch/$s_!fTGu!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3942482-5b2b-4d6a-90b5-25d8a1ab0211_1444x884.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/a3942482-5b2b-4d6a-90b5-25d8a1ab0211_1444x884.png" width="1444" height="884" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/a3942482-5b2b-4d6a-90b5-25d8a1ab0211_1444x884.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":884,"width":1444,"resizeWidth":null,"bytes":250328,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!fTGu!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3942482-5b2b-4d6a-90b5-25d8a1ab0211_1444x884.png 424w, https://substackcdn.com/image/fetch/$s_!fTGu!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3942482-5b2b-4d6a-90b5-25d8a1ab0211_1444x884.png 848w, https://substackcdn.com/image/fetch/$s_!fTGu!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3942482-5b2b-4d6a-90b5-25d8a1ab0211_1444x884.png 1272w, https://substackcdn.com/image/fetch/$s_!fTGu!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fa3942482-5b2b-4d6a-90b5-25d8a1ab0211_1444x884.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>On an alarmist reading, the point is not simply that prices are rising, but thatt inflation (in the general macroeconomic, Friedmanite sense) is baaaaaaaaaack.</p><p>This may indeed be alarmist. Crucially, the signs of a wage-price spiral which, as the BIS acknowledges, is crucial to any truly general inflationary process, are weak at best. </p><p>Furthermore, the report adds an interesting consideration about policy. </p><p>Monetary policy - as in central bank interest rate setting - operates most powerfully on the common, general component of price increases. </p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" target="_blank" href="https://substackcdn.com/image/fetch/$s_!py_n!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F4628be72-2e37-4a6b-9331-402177ade5f7_1456x980.png" data-component-name="Image2ToDOM"><div class="image2-inset"><picture><source type="image/webp" srcset="https://substackcdn.com/image/fetch/$s_!py_n!,w_424,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F4628be72-2e37-4a6b-9331-402177ade5f7_1456x980.png 424w, https://substackcdn.com/image/fetch/$s_!py_n!,w_848,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F4628be72-2e37-4a6b-9331-402177ade5f7_1456x980.png 848w, https://substackcdn.com/image/fetch/$s_!py_n!,w_1272,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F4628be72-2e37-4a6b-9331-402177ade5f7_1456x980.png 1272w, https://substackcdn.com/image/fetch/$s_!py_n!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F4628be72-2e37-4a6b-9331-402177ade5f7_1456x980.png 1456w" sizes="100vw"><img src="https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/4628be72-2e37-4a6b-9331-402177ade5f7_1456x980.png" width="1456" height="980" data-attrs="{"src":"https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/4628be72-2e37-4a6b-9331-402177ade5f7_1456x980.png","srcNoWatermark":null,"fullscreen":null,"imageSize":null,"height":980,"width":1456,"resizeWidth":null,"bytes":228682,"alt":null,"title":null,"type":"image/png","href":null,"belowTheFold":true,"topImage":false,"internalRedirect":null,"isProcessing":false,"align":null,"offset":false}" class="sizing-normal" alt="" srcset="https://substackcdn.com/image/fetch/$s_!py_n!,w_424,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F4628be72-2e37-4a6b-9331-402177ade5f7_1456x980.png 424w, https://substackcdn.com/image/fetch/$s_!py_n!,w_848,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F4628be72-2e37-4a6b-9331-402177ade5f7_1456x980.png 848w, https://substackcdn.com/image/fetch/$s_!py_n!,w_1272,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F4628be72-2e37-4a6b-9331-402177ade5f7_1456x980.png 1272w, https://substackcdn.com/image/fetch/$s_!py_n!,w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F4628be72-2e37-4a6b-9331-402177ade5f7_1456x980.png 1456w" sizes="100vw" loading="lazy"></picture><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-refresh-cw"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg xmlns="http://www.w3.org/2000/svg" width="20" height="20" viewBox="0 0 24 24" fill="none" stroke="currentColor" stroke-width="2" stroke-linecap="round" stroke-linejoin="round" class="lucide lucide-maximize2 lucide-maximize-2"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p>In the low-inflation environment of recent decades it was not for nothing that central banks had to resort to unconventional measures. Their instruments have little bite in a world of microeconomic price movements.</p><p>As of early 2022 this has clearly changed. </p><p>The contention of those who refused to be panicked by inflation and still are not panicked, has always been that, if inflation were actually to occur, policy-makers had the tools to deal with it. That contention is now going to be put to the test. </p><p>*******</p><p>I love writing Chartbook and I am particularly pleased that it goes out free to thousands of readers all over the world. But it takes a lot of work and what sustains the effort is the support of paying subscribers. If you appreciate the newsletter and can afford a subscription, please hit the button and pick one of the three options.</p><p class="button-wrapper" data-attrs="{"url":"https://adamtooze.substack.com/subscribe?","text":"Subscribe now","action":null,"class":null}" data-component-name="ButtonCreateButton"><a class="button primary" href="https://adamtooze.substack.com/subscribe?"><span>Subscribe now</span></a></p><p></p>No children (leaf entity)