Demand-pull inflation occurs when the demand of a good or service exceeds supply. Demand-pull happened during the early days of COVID-19 as governments doled out money to everyone. As the economy recovered back to full employment, demand has remained high relative to supply.
Both of these factors can lead to built-in inflation, which is where labour sees rising prices and demands higher wages. This is the wage price spiral economists talk about. This was a big part of the 1970s inflation and what the central banks want to make sure does not happen today. Let’s look at the different ways central banks are measuring inflation today and figure out if they can generate a soft/no landing scenario markets have celebrated in the past few months.
The core PCE excludes food and energy, and as in the example above, of the two main volatile prices groups, commodity-based prices move more frequently. So this is a similar view, but a slightly different look versus the sticky inflation basket. The core PCE surprised markets last week by rising when it was expected to decline and was a negative for asset prices.
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