One definition of transient inflation is higher than normal inflation that will soon return to normal (say 2%.) That’s probably the definition this is most consistent with how we normally define terms like “transient”. But I don’t think it’s the most useful definition, the definition that gets at the question that we actually have in our minds.
Whether inflation is temporary depends on what the Fed does in the future. But surely people have something more than future monetary policy in mind when they contemplate whether a given bout of inflation is transient. For instance, the Fed is equally capable of stopping a demand-side inflation like 1966-69 as it is in stopping a temporary bout of supply-side inflation (such as 2007-08). Nonetheless, these two inflations seem intrinsically different in some sort of important way.
So here’s my proposal for a more useful definition of “transient inflation”. A transient inflation can be brought back to 2% relatively quickly without triggering much higher unemployment. Inflation that is not transient can also be brought back to 2%, but doing so quickly will trigger much higher unemployment. It’s like the difference between an illness that will quickly pass away on its own, and an illness that requires painful medical treatment. Both are temporary, but only the former is transient.
If you are wondering whether nominal wage inflation plays a role here, the answer is yes. Be very wary of people who react to rising nominal wages by saying, “Finally! Workers are getting a raise.” What matters is real wages, which are not doing well in recent months. We would like to see a higher long-run growth rate of real wages, whereas we would not like to see short run spikes in nominal wage growth.
PS. I used to like reading Yglesias. Now I hate him:
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