Below is a chart and brief excerpt from today's Early Look written by Financials & Macro analyst Josh Steiner.
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Base effects are a key component of this dynamic. Consider that since 1948 there have been 7 bouts of inflationary shock, including the current period. The six preceding shocks lasted, on average, 24 months as measured from trough to peak CPI. The max was 28 months while the min was 20 months. The current shock began in May 2020 with CPI 0.3% and we are now 23 months removed from then (1 month shy of the average). In terms of magnitude, CPI has risen 820 bps in those 23 months (from 0.3% to 8.5%). The historic average of those prior episodes was 710 bps. Why such tight dispersion around the duration mean? Two reasons: base effects and policy changes – we’ll get to the latter in a moment. |
