Untangling Persistent versus Transitory Shocks to Inflation
Abstract: How much persistent versus transitory forces contribute to inflation influences the Federal Reserve’s ability to achieve its goal of 2% average inflation over time. If elevated inflation is driven mainly by persistent shocks, then a stronger and longer-lasting policy response is likely to be needed to bring inflation back down. Recent data show that consecutive changes in monthly inflation rates have tended to move increasingly in the same direction. This pattern suggests that the contribution of persistent shocks to inflation has been rising since mid-2019.
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Provider: Federal Reserve Bank of San Francisco
Part of Series: FRBSF Economic Letter
Publication Date: 2022-05-23