E-piphany

This is a single issue, of the November 2020 Quarterly Inflation Outlook.

Executive Summary

• Four years ago, our assessment of what a Trump Administration would mean for inflation trends was fairly accurate, although we expected more change at the Fed.
• It is much harder to get a read on what the Biden/Harris Administration might do and how that will affect inflation; the official platform is unlikely to be significantly implemented since most of it is politically unpopular for the majority of Americans.
• There is little doubt that lowering tariffs and trade impediments is an unalloyed benefit for the consumer, if not for the worker, so reversal of “America First” trade policies will likely cause short-term pain for growth but in the long term will help reduce inflation.
• However, we believe that globalization had already mostly run its course before Trump so this isn’t likely to be a huge benefit in holding down inflation.
• If the Biden-Harris platform was to be fully implemented we would expect higher inflation in energy, education, medical care, housing, and domestically-produced goods and services especially in unionized industries, while imported goods and services would inflate by somewhat less…all in the unlikely event that these policies are implemented.
• Coming off some of the highest inflation readings in the last quarter century, it is clear that there are no significant disinflationary/deflationary trends in the economy at the moment.
• Core goods prices have risen sharply, core services inflation have decelerated. However, most of the decline in core services is in rents and medical care, neither of which seems very likely to continue.
• We give a thorough explanation about why shelter inflation looks unlikely to continue to decline.
• Our forecasts, which we raised sharply in the last QIO, change little this quarter.
• The statement that “equity prices rise in the long run” is vacuous pabulum at best, misleading at worst.