Why Inflation is Coming Down So Fast

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SOURCES:
I've linked my sources in the blog that goes along with this video. Links are in the text.

Timestamps:

0:00 - introduction
1:26 - inflation spike drivers
10:45 - sponsor
12:06 - inflation fall drivers
13:36 - the future

Narrated and produced by Dr. Joeri Schasfoort

Is this the End of Sky High Inflation?

[thesorrow]

It would have been nice to hear your thoughts or any research you may have read that discussed how much of inflation is simply corporations raising prices because they can (beyond making up for higher cost of doing business), purely for higher profit margins, with inflation being their easy justification.

[robdowns]

The transitory word was misused to infer prices would go back to lower level, not the rate of change would go back to a lower level.

[myaowl]

0:08: 📈 Inflation in the United States, the U.K., and Euro Area surged during the pandemic but is now seemingly falling.
3:38: 💬 Inflation is falling and unemployment is low, contradicting predictions of hyperinflation and high unemployment.
7:42: 📊 The video discusses the drivers of inflation in Europe and the role of Russia's invasion of Ukraine.
10:14: 💰 The video discusses the role of government support and stimulus in inflation, as well as the potential end of supply problems and the rise of demand-led inflation.
13:42: ✅ The great inflation surge is unlikely to happen again due to various factors.
Recap by Tammy AI

[martinglatzl]

Great analysis, bringing lots of different aspects together to systematically replace what I perceived a "gut feeling" by a consistent line of argument. Thanks

[TheLazyEconomist]

Thank you for providing links to the papers. Many people ignore citing sources and it kills me since many people ignore the importance of methodology and just report results.

[peterkratoska]

I've always thought it was primarily supply shock, due to so many industries shut down.

As a printer in business for 35 yrs, 2021-2022 saw huge price increases and lack of supply.
In some cases, I had orders but no paper or graphic supplies (or had to wait a month) it was unprecedented.

A plumber friend building a shower for us in 2021 said there are no 2 inch elbows (at all).

In a year some paper was up almost 100%.

However, looking at paper prices, I am now seeing a 20-30% price drop since the peak. So some prices are definitely coming down.

[glykolyse]

13:00 I think it would be a good idea to dive deeper into the relationship between rising interest rates, mortgages and rents. I’ve heard that in the UK, higher interest rates have meant that more people are deciding to rent, driving up rent prices and thus contributing to inflation.

[davidfisher]

There is another factor and it is "opportunistic price raises." This price rise is NOT due to the item's costs of production going up but rather due to merely choosing to raise prices because "you can." Food items in smaller cans but keeping the price of a "can" where it was but having smaller cans. That is opportunistic price increasing.

And "opportunistic raising of prices" is NOT based on higher production costs but based on NOTHING at all except greed, or "opportunistic" raising of prices. I bet that that opportunistic price raising is more prevalent than you think.

For instance, the price of cars has gone up by a lot, but total cost to manufacture has NOT gone up as the reason for car prices going up. You can verify this by looking at the total profit of auto makers which has gone up by a lot for the entire auto industry over the last 10 years. Their car prices have been significantly higher NOT due to higher manufacturing costs but for the "greed" for higher corporate profitability and the reason being that it's being "hidden".


You prove this by looking at the published shareholder profits for an industry vs. its costs of manufacturing for that industry over 10 - 12- 15 years. You can use published financial reports filed for SEC and stockholders. It is far bigger than you may guess.
...

[devilred]

Agree that deglobalisation, ageing population and geopolitical tension will make inflation stay much longer this time to fall to 2% long-term target. The technology revolution e.g. AI will also play a role in whether productivity growth suppresses inflation.

[xellos]

I take option 3: Both teams are stuck in the past, and hold on to economic models that make no sense. MMT explains everything that happens right now to a T. I don't know much about US-Economy, except that rent prices got sky high during COVID, which is very different from House-Prices. Renting != Buying.
In Europe, and especially in Germany, where I'm from, the "inflation" isn't even infaltion. It was a price shock, which was perfectly explained here. I can't add anything more, as this whole thing was explained beautifully!

Now the next problem, as I understand it, will be growth. Germany is tanking its current economy, because it cuts its spending in the middle of a crisis. The hike in the interest rate is tanking the economy now. Germany has a massive rent issue, where people are spending 50-60% of their income on rent in major cities. At the same time, interest rates of 4.5% are killing the construction industry, which has a drop in contracts of (I think) 16% right now. Meaning we have not enough flats, and are going to build less now.

At the same time, prices will go up, because COVID stimulus will end, and the government will not extend it. One example for this is the reduced VAT on restaurant food. While Spain and Portugal set the VAT on food to 0, Germany will increase the VAT on restaurant food back to 19% from now 7% on Jan 1st 24. Another inflation factor will be the CO2 price increase. Coming 2024, the government will increase the price of 1 ton of carbon from 30€ to 40€, an increase of 33%, while announcing that, unlike promised, this money will not be returned to the consumer. Meaning prices will go up, consume will go down.

Germany is facing an economic crisis right now, and our government is pushing it into overdrive. Why? Because they think that one of these two teams from this video is right. They think this neo liberal bullshit of a state only having the money of its tax payers is true. They're morons, and they're ruining our economy because of it. Money in infinite, it is made up. It is physical resources that is limited. Labour, CO2, materials. We saw it during COVID, when the semi-conductors got rare => price shock. During the russian war, when gas got cut off => price shock. Not enough living space in cities => increasing rents. Not enough workers => Wages go up, or business go under because of understaffing. Not enough craftsmen => prices for reparis in your home go up. It is not always simple, but it usually breaks down to a straight forward cause and effect.

[ln]

Great video! Funnily enough I found this video, just as I submitted my Bachelor's thesis on this exact subject today 😃You even mentioned some of the same papers I used, like the ones from Shapiro.

[sai]

This is an excellent video on inflation. Most informative that I have seen so far. The conclusions from the data is balanced and very professional. Thank you..

[PKECRE]

Inflation is a short term problem ... The problem is the on coming depression/recession over 50% of small businesses shut down over covid and there not coming back... And small towns got hurt the most. The money has run out and now everything is dropping in value.

[jose-]

Given reduced inflation signals and as the Federal Reserve has halted rate hikes, what are the best additions for a $500K portfolio to enhance the overall performance of my portfolio next year

[carlospesqueraalonso]

Een 👍 ist niet genug!!! Dankon por viaj kvalitaj scienco-bazitaj videoj.

[electrowasabi]

At least in the US, inflation numbers are not an accurate representation of the increasing cost of living people experience.

[DarthJarJar]

Fascinating video!
I mostly agree with your take and truly love that you dug into the data and broke down the drivers of inflation.

The only thing you might have excluded (don't think you missed it) is the consequences of interactions or transmission mechanisms and/or lag/lag effects... For example... When you looked at US rental inflation, couldn't the driver there be the higher home loan interest rates?

[danailvasilev]

I love how you put EE into the non economist bin. Good. Say it like it is.😂

[FlyingFlaneur]

It's been 4 months and this video holds up well. It was well researched and presented. I'll bet it'll hold up just as well a couple of years from now.

[AlberYouTube]

Such a refreshing channel to watch. Backing up claims with actual data and not succumbing to doomsday titles and videos for clicks. You deserve way more views than you're already getting. Thank you!