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George Waters's avatar

You're right that the supply shock matters, but a good supply shock can easily lead to a negative sacrifice ratio.

The fall in inflation without unemployment could be the combination of monetary tightening and a beneficial supply shock from the supply chain problems subsiding. For some graphs to go with this story, see:

https://gdubbbb.substack.com/p/the-mysterioustearless-disinflation

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Gene Frenkle's avatar

Now do July 2008. What happened when CPI peaked at 5.6% after 4 years of elevated CPI?? Oh wait, the Fed uses core PCE and so elevated CPI is ignored…except they forgot to inform consumers! 😉

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