Martin Almuzara, Richard Audoly, Augustin Belin, and Davide Melcangi Wage growth has moderated notably following its post-pandemic surge, but it remains strong compared to the wage growth prevailing during the low-inflation pre-COVID years. Will the moderation continue, or will it stall? And what does it say about the current state of the labor market? In this post, we use our own measure of wage growth persistence – called Trend Wage Inflation (TWIn in short) – to look at these questions. Our main finding is that, after a rapid decline from 7 percent at its peak in late 2021 to around 5 perc ..read more

Richard K. Crump, Stefano Eusepi, and Ayşegül Şahin In the aftermath of the COVID-19 pandemic, the U.S. economy experienced a swift recovery accompanied by a sharp rise in inflation. Inflation has been gradually declining since 2022 without a notable slowdown in the labor market. Nonetheless, inflation remains above the Federal Reserve’s 2 percent target and the path of the so-called final mile remains uncertain, as emphasized by Chair Powell during his press conference in January. In this post, we examine the unemployment-inflation trade-off over the past few years through the lens of a New ..read more

Mary Amiti, Oleg Itskhoki, and David E. Weinstein Inflation around the world increased dramatically with the reopening of economies following COVID-19. After reaching a peak of 11 percent in the second quarter of 2021, world trade prices dropped by more than five percentage points by the middle of 2023. U.S. import prices followed a similar pattern, albeit with a lower peak and a deeper trough. In a new study, we investigate what drove these price movements by using information on the prices charged for products shipped from fifty-two exporters to fifty-two importers, comprising more than twe ..read more

Jaison R. Abel and Richard Deitz Shortly after the recovery from the pandemic recession began, the U.S. economy entered a period of high inflation as surging demand, severe supply disruptions, and worker shortages combined to create large imbalances and inflationary pressures in the economy. More recently, however, inflationary pressures have been moderating. Indeed, the inflation rate as measured by the consumer price index (CPI) has come down from its recent peak of 9.1 percent in the summer of 2022 to 3.1 percent at the start of 2024. Have inflationary pressures also moderated for loc ..read more

Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, Wilbert van der Klaauw, and Crystal Wang The New York Fed’s Center for Microeconomic Data released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2023 this morning. Household debt balances grew by $212 billion over the last quarter. Although there was growth across most loan types, it was moderate compared to the fourth-quarter changes seen in the past few years. Mortgage balances grew by $112 billion and home equity line of credit (HELOC) balances saw an $11 billion bump as borrowers tapped home equit ..read more

Danial Lashkari How can we accurately measure changes in living standards over time in the presence of price inflation? In this post, I discuss a novel and simple methodology that uses the cross-sectional relationship between income and household-level inflation to construct accurate measures of changes in living standards that account for the dependence of consumption preferences on income. Applying this method to data from the U.S. suggests potentially substantial mismeasurements in our available proxies of average growth in consumer welfare in the U.S. These insights and results are based ..read more

Richard Audoly, Martín Almuzara, Richard Crump, Davide Melcangi, and Roshie Xing With prices quickly going up after the COVID-19 pandemic, inflation releases have rarely been as present in the public debate as in recent years. However, since inflation estimates are frequently revised, how precise are the real-time data releases? In this Liberty Street Economics post, we investigate the size and nature of revisions to inflation. We find that inflation estimates for a given month can change substantially as subsequent data vintages are released. As an example, consider March 2009. With the econ ..read more

Felix Aidala, Olivier Armantier, Fatima Boumahdi, Gizem Kosar, Devon Lall, Jason Somerville, Giorgio Topa, and Wilbert van der Klaauw Editors Note: The title of this post has been changed from the original. August 17, 2023, 10:35 a.m. Inflation in the U.S. has experienced unusually large movements in the last few years, starting with a steep rise between the spring of 2021 and June 2022, followed by a relatively rapid decline over the past twelve months. This marks a stark departure from an extended period of low and stable inflation. Economists and policymakers have expressed differing vie ..read more

Markus Brunnermeier, Sergio Correia, Stephan Luck, Emil Verner, and Tom Zimmermann The recent rise in price pressures around the world has reignited interest in understanding how inflation transmits to the real economy. Economists have long recognized that unexpected surges of inflation can redistribute wealth from creditors to debtors when debt contracts are written in nominal terms (see, for example, Fisher 1933). If debtors are financially constrained, this redistribution can affect real economic activity by relaxing financing constraints. This mechanism, which we call the debt-inflation c ..read more

Martin Almuzara, Babur Kocaoglu, and Argia Sbordone Elevated inflation continues to be a top-of-mind preoccupation for households, businesses, and policymakers. Why has the post-pandemic inflation proved so persistent? In a Liberty Street Economics post early in 2022, we introduced a measure designed to dissect the buildup of the inflationary pressures that emerged in mid-2021 and to understand where the sources of its persistence are. This measure, that we labeled Multivariate Core Trend (MCT) inflation analyzes whether inflation is short-lived or persistent, and whether it is concentrated i ..read more