Find answers, ask questions, and connect with our community around the world.

  • btomba_77

    August 21, 2023 at 3:38 am

    White House Council of Economic Advisors:
    [h3][link=]Chain Reaction: Immaculate Disinflation and the Role of  Easing Supply Chains[/link][/h3]
    Explanation on how inflation can be easing while unemployment holds at record lows.



    As this post shows, part of what is driving inflation back down is the unsnarling of formerly snarled supply chains. Of course, supply chain normalization is but one of the relevant dynamics in the current economy. There has been some cooling of the labor market that shows up in other measures besides unemployment (e.g., fewer unfilled job openings), and the sharp growth of prime-age labor supply has also been an important factor in play. Moreover, as the levels in July 2023 inflation rates in table 1 show, disinflation is still a work in progress. As the President says, our work is not over in this regard.

    Whether the future holds more of a trade-off between economic activity and lower inflation is to be seen. A trade-off between inflation and the unemployment rate could still emerge, leading the sacrifice ratio to rise. Thus far, however, as the factors delineated aboveimproved supply chains, greater labor supply, some labor market coolinghave helped to ease inflationary pressures, the persistently tight labor market has helped to fuel wage gains that are now beating inflation, more so for middle- and low-wage workers who often depend on a tight labor market as a source of bargaining power.
    These real wage gains, in turn, continue to support robust consumer spending, as seen most recently in this weeks stronger than expected retail sales report. We see nothing particularly magical or immaculate about any of these developments, and our goal is to continue working to further ease supply-side pressures while maintaining the historically tight labor markets.