Why Have Inflation Forecasts Been So Wrong? – Project Syndicate
“We still need to know why forecasts continue to miss the mark. Two factors are now well-documented. First, forecasts underestimated the demand impact of massive monetary and fiscal easing, alongside high spending multipliers associated with significant pandemic-related transfers to households. Second, major demand stimulus hit just as supply chains were under major, unexpected strain, owing first to the pandemic and then to Russia’s invasion of Ukraine.”
As stated here many times, distributional analysis should be done on where to draw the line on government subsidies. Transfers to low-income households to maintain current consumption probably result in less excess demand and inflation than transfers to higher-income households, more of which can be saved and used to bid up prices – especially if there is limited supply. Related articles:
White House’s promised childcare subsidies face a host of ‘devils in the details’
“While subsidized childcare would meet a pressing need for many low- and modest-income working parents, providing benefits to upper-income professionals and inflationary impacts could push the program’s cost as high as $1 trillion over 10 years.”
Biden’s stimulus risks sending aid to those who don’t need it