Transitory inflation: The expectations for the Fed

Yahoo Finance’s Rick Newman joins the Live show to discuss transitory inflation and its long-term effects.

Video Transcript

JARED BLIKRE: Many economists had believed that elevated inflation would be transitory or short-lived since it stemmed, in part, from COVID-related supply chain snafus. But it's been two years since inflation started to rise above the Federal Reserve's target of 2%, leaving the Street wondering if there's still a case for transitory inflation. Yahoo Finance's Rick Newman joins us now for more. Rick, can we finally consign this word to the dustbin of history, or might it be repurposed?

RICK NEWMAN: No, maybe it can be repurposed. An interesting paper by two economists, well-known economists Robin Brooks and Peter Orszag, caught my eye recently. They actually think that supply chain disruptions relating to COVID are still pushing up prices. And the reason they think this in this paper they recently published, they looked at input prices and output prices for manufacturers at the end of 2022.

And they found that input prices, what they pay for raw materials and components and things like that, they were back down to pre-COVID levels. But output prices, what they charge wholesalers and retailers, were not. They were still elevated. And based on the numbers these two economists found, they thought that supply chain disruptions dating back to COVID could have accounted for between 30% and 70% of core inflation at the end of '22. Jared, you know that's a lie.

So, you know, I think we know that supply chains are basically back to normal. And I think that because they are, most people think, well, that means that must not be a factor influencing inflation anymore. But what these two economists are saying is, there's a lag. And the lag could be much longer than anybody thinks. We don't have a lot of historical data on this.

And maybe it's taking quite a while for prices to normalize, which would actually be good news for inflation because it would suggest that it may abate on its own more than a lot of people think. And perhaps the Fed could stop hiking rates or maybe has even overdone it. So, you know, nobody knows for sure what is really causing inflation and how to get it down, but this is a different way of looking at it.

JARED BLIKRE: Yeah, really appreciate your insights there. Got to leave it there, Rick Newman.