Although price inflation (the consequence of monetary inflation) is a glaring macroeconomic trend, any talk of inflation should be forbidden on this board due to inflation’s undeniable and inextricable relationship with fiscal policy, i.e., politics.
If a person is opposed to inflation, this could be construed as opposition to fiscal stimulus of aggregate demand (otherwise known as federal government spending) and opposition to federal government spending is a political policy stance, viz., fiscal conservatism.
On this decidedly apolitical board, let us, therefore, remain neutral on the subject of inflation so as not to show favor of one political party over another.
Consumer price inflation (CPI) is due to consumer demand growing faster than supply of consumer goods and services. This is directly impacted by fiscal policy, which puts money into (or removes from) consumer hands by government spending and/or taxation policy.
Fiscal policy has a far more direct impact on inflation than monetary policy, which works slowly through bank lending. Monetary policy has a more direct impact on asset prices.
It is essential for investors to understand the financial dynamics to invest sucessfully. Partisan politics is forbidden on METAR. But Macroeconomics is the topic of this board. Inflation is an essential part of Macroeconomics but doesn’t need to become partisan.
If you can’t wrap your head around this, try a little harder. Some of us do not build political bias into our screen names – or our analysis. Maybe you can learn that skill. If not, leave METAR.
Fiscal policy has a far more direct impact on inflation than monetary policy, which works slowly through bank lending. Monetary policy has a more direct impact on asset prices.
Wendy,
There are two ears a tail and a nose on most cats.
The inflationary spiral is much more dependent on monetary policy. But hardly exclusive of any of the other factors.
As you are saying monetary policy impacts asset prices. Goods are assets. The GDP backs the USD or money supply in other words. The intertwining of the GDP in correlation with the money supply to back the dollar is the entire concept in econ behind a liberalized economy. There is a goldbug politics in that a liberalized economy, but other wise it is not actually political.
What is political but much more importantly for our purposes economics is optimizing the US economy. We have no need to drag in the parties into this discussion here in the forum. We do need to understand the balance between policy that grows the GDP going to far or ruinously with such policies at to get marginal inflation. While 8% is an extreme of marginal inflation we all want much close to 2% inflation.
In the 2% inflation world pay for the shop owner and her workers rises modestly faster than the business’s utility costs. GDP grows rapidly and the US and I might add UK growth wealthy with a return to their manufacturing bases.
In today’s inflation monetary policy has been a disaster. Or a boon making in relative terms the federal debt load much easier to pay and releasing us from slower GDP growth policies.
Inflation is beginning to ease. The relationship to energy prices is key. WTIC is softening again.
We often can wait on a product in the supply chain. We often can substitute a product if need be.
US corporate profits have sky rocketed.
It is all an interesting tale. There are opportunities coming. Inflation subsiding will again lead to growth.
The 1Q and now the 2Q 2022 are in recession. Many of us are coming from something of means and not feeling it as much. It is a shallow recession. Even a hiring recession.
We sit in wait of the Chinese financials and our bankers’ trading desks going crazy worried about exposure.