“US consumer prices inflation dropped sharply in June to 3.0% yoy and ‘core’ inflation, which excludes food and energy prices, also fell back to 4.8% yoy. These figures took the inflation rate back to 2021 levels. But this has not been achieved by central bank monetary policy pushing down ‘excessive demand’ but through slowing growth, particularly in manufacturing and trade. What’s going to bring inflation down further is not more rate hikes but a recession.”
Excellent analysis. Another factor driving inflation to consider alongside the dance of supply and demand is targeting so much of Covid stimulus $$ to higher-income consumers (Cantillon effects). Increasing the money supply primarily through businesses and the professional class provided extra funds to bid up prices of goods in short supply. Would inflation have been lower if politics allowed stimulus dollars to be targeted more progressively, and leanly, to middle and lower-income households needing the money to maintain normal consumption of essential items? As I pointed out in a letter to the Washington Post (“Low-income Americans are left out of covid stimulus”), the initial bipartisan proposal emerging from the Senate just after Biden’s election in 2020 lacked cash payments to families that had been part of the Cares Act during the Trump Administration. As discussions advanced, direct payments to households were added in the American Rescue Plan, the $1.9-trillion stimulus package Biden signed into law in March 2021.