Another great one, MK. I found this recent note from the Dallas Fed to also be a useful take on when to up- and down-weight the trimmed mean: https://www.dallasfed.org/research/economics/2026/0416 (Answer: what the dist of prices is more skewed, it tells you less about where inflation is headed, consistent with your insights here).
But I'd like you to unpack your "...own theory of the inflation wave" a bit more. I agree with the dynamics that you and L/W describe but it seems simpler and clearer to simply point out that strong demand collided with constrained supply. As those two edges of the scissors normalized, inflation receded.
Nuances abound, of course, most notably how consumer preferences shifted towards goods demands at the very time they were unusually hard to move. And we can argue how much fiscal contributed to demand. I'm really not sure about the role wage growth plays. Alan Blinder's adage is stuck in my head on this one: prices cause wages and wages cause prices.
I like strong demand/constrained supply, but I do think it needs a supplement for how price increases broadened one-time before also coming down, and that second order effect is important (and what tricks something like trimmed-mean).
Wages, imho: during peak inflation prices lead wages, or, as people have pointed out to us many, many, times real wages were falling (as was the labor share, whose inverse is a proxy for markups). So I don't really buy that the strong wage growth drove inflation at its peak, even if prices are more flexible than wages. But I'm open to more nuanced stories than that high-level one; it's good to get our arms around this given the idea floating out there that wage compression drove the vibecession.
Another great one, MK. I found this recent note from the Dallas Fed to also be a useful take on when to up- and down-weight the trimmed mean: https://www.dallasfed.org/research/economics/2026/0416 (Answer: what the dist of prices is more skewed, it tells you less about where inflation is headed, consistent with your insights here).
But I'd like you to unpack your "...own theory of the inflation wave" a bit more. I agree with the dynamics that you and L/W describe but it seems simpler and clearer to simply point out that strong demand collided with constrained supply. As those two edges of the scissors normalized, inflation receded.
Nuances abound, of course, most notably how consumer preferences shifted towards goods demands at the very time they were unusually hard to move. And we can argue how much fiscal contributed to demand. I'm really not sure about the role wage growth plays. Alan Blinder's adage is stuck in my head on this one: prices cause wages and wages cause prices.
Thanks Jared!
I like strong demand/constrained supply, but I do think it needs a supplement for how price increases broadened one-time before also coming down, and that second order effect is important (and what tricks something like trimmed-mean).
Wages, imho: during peak inflation prices lead wages, or, as people have pointed out to us many, many, times real wages were falling (as was the labor share, whose inverse is a proxy for markups). So I don't really buy that the strong wage growth drove inflation at its peak, even if prices are more flexible than wages. But I'm open to more nuanced stories than that high-level one; it's good to get our arms around this given the idea floating out there that wage compression drove the vibecession.