Around this time last year, there was a lot of debate, some of it ill-tempered, about who deserved blame for soaring inflation. Now most of that is gone, replaced by a debate, some of it ill-tempered, about who deserves credit for the rapid decline in inflation.AP
But while the disinflation came, the rise in unemployment hasn’t, at least so far. And other measures of labour market strength, like the employed share of prime-age adults, have improved to levels not seen in decades. So how can we give credit to the Fed for disinflation when the mechanism through which monetary policy is supposed to reduce inflation doesn’t seem to be operating?
This argument provoked an acerbic response from Olivier Blanchard of the Peterson Institute for International Economics, who, you should know, isn’t just one of the world’s most respected macroeconomists but also normally a very even-tempered kind of guy. But he recently stated on X, the platform formerly known as Twitter, “Short of a direct effect on inflation expectations, or mind control, or price/wage controls, this requires slowing down the economy, and thus increasing unemployment.
Now, the NFIB survey doesn’t directly ask respondents about the rate of inflation. Instead, it asks whether they are increasing or reducing prices and reports the resulting “diffusion index,” the difference in number between those increasing and those reducing. Such diffusion indexes tend, however, to track economic data quite well.
This result is useful for several reasons. One is that it serves as a rebuttal to inflation truthers who claim that the government is faking the price numbers; yes, they’re back. But there’s a private survey that tells the same story as the government numbers.
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