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Inflation Persistence: How Much Is There and Where Is It Coming From?

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Abstract

The surge in inflation since early 2021 has sparked intense debate. Would it be short-lived or prove to be persistent? Would it be concentrated within a few sectors or become broader? The answers to these questions are not so clear-cut. In our view, one should ask how much of the inflation is persistent and how much of it is broad-based. In this post, we address this question through a quantitative lens. We find that the large ups and downs in inflation over the course of 2020 were largely the result of transitory shocks, often sector-specific. In contrast, sometime in the fall of 2021, inflation dynamics became dominated by the trend component, which is persistent and largely common across sectors.

Suggested Citation

  • Martín Almuzara & Argia M. Sbordone, 2022. "Inflation Persistence: How Much Is There and Where Is It Coming From?," Liberty Street Economics 20220420, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:94064
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    Cited by:

    1. Michael T. Kiley, 2023. "The Role of Wages in Trend Inflation: Back to the 1980s?," Finance and Economics Discussion Series 2023-022, Board of Governors of the Federal Reserve System (U.S.).
    2. Le Bihan, Hervé & Leiva-Leon, Danilo & Pacce, Matías, 2023. "Underlying inflation and asymmetric risks," Working Paper Series 2848, European Central Bank.
    3. Verbrugge, Randal & Zaman, Saeed, 2024. "Improving inflation forecasts using robust measures," International Journal of Forecasting, Elsevier, vol. 40(2), pages 735-745.

    More about this item

    Keywords

    trend inflation; sectoral inflation; common persistence;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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