Jason Furman on Red-Hot Inflation and What To Do About It

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:15)

And I'm Joe Weisenthal.

Tracy Alloway (0:18)

So Joe, I think without question, the hottest topic in the world of economics, markets, finance right now has to be inflation. And this debate over whether or not the higher than expected price levels that we have seen recently are in fact transitory.

Joe Weisenthal (0:37)

Absolutely, we got the October CPI numbers recently. They came in at either 6 or 6.2%. They're the hottest in I think 31 years. The debate over transitoryness is very hot right now.

A lot of people are capitulating.

Tracy Alloway (0:55)

I mean, I will say we have been spending a lot of time over the past year talking about supply chain issues.

And I find them fascinating as sort of micro markets in and of themselves and a really interesting exercise in looking at economic and business principles in a specific and sort of salient thing. But on the other hand, there is plenty of criticism now that there's too much focus on the supply chain issues.

Joe Weisenthal (1:22)

Yes.

Tracy Alloway (1:22)

There's been too much focus on micro versus the macro explanation of inflation.

Joe Weisenthal (1:30)

Yeah, exactly right. And so this is the question. And I guess the question is, can you tease out the two? And so you look like aggregate demand for goods in the US is absolutely booming. We're recording this Wednesday, November 17th. Yesterday, we got the retail sales number. It was very strong. The number of containers coming to the ports, we've done a million ports episodes.

It's very high for all of the issues that they're having. There's a lot moving through.

And so part of the question is, if by focusing on the supply chain specifically, or some of the critics might say, are we ignoring just the fact that aggregate demand is booming and that's pushing up prices?

Tracy Alloway (2:11)

Yeah.

And it is true that you can find an individual explanation to explain almost any major price increase at the moment. But at the same time, it does seem to be rather broad-based. There is this broader upwards pressure and it seems to be happening all around the world in lots of different things. So there might be a more macro story there. So today, in the interests of devoting more time and attention on the macro story, I am very pleased to say we are going to be speaking with Jason Furman. He is a professor of practice over at Harvard University, also a senior fellow at the Peterson Institute for International Economics. And of course, he was the former chair of President Obama's Council of Economic Advisors. And he's been tweeting a lot about his thoughts on inflation, the supply versus demand side of it, the micro versus the macro.

And he is also in the process of publishing a paper on this exact topic. So really a great person to talk to. Jason, welcome to the show.

Jason Furman (3:16)

Great to be here.

Tracy Alloway (3:17)

So maybe just to begin with, shall we start with an obvious question? Like when you saw the CPI numbers last week, and again, we're recording this on November 17th, when the number came in hotter than expected, what did you think?

Jason Furman (3:34)

I thought it came in hotter than expected, but in a broader sense, I wasn't surprised because I had looked at the last couple months, and this actually is micro, not macro, what I'm about to say, that they had been, core CPI had been temporarily lower because car prices fell, and because things like hotels and airfares fell because of the Delta variant.

And I didn't expect all of those to continue falling. So in some sense, we had transitory, low core inflation in August and September. I didn't expect that to last. And then stepping back, there's a bigger macro story that we'll be able to talk a lot about over the course of this podcast.

Joe Weisenthal (4:21)

So let's just jump into some of these macro questions. And part of these questions have to do, I think, with definitions. And so we talk about this term transitory a lot. And there's a lot of people that, you know, we're all on Twitter and they're like, ah, oil prices up again. So much for your transitory inflation.

Obviously, you know, the existence of a price move itself, either in a category or in a index, does not prove or disprove transitoryness. What in your view is, how do you think about this question?

And what would you like to see, or what do we need to see to sort of answer in a definitive manner, whether this inflation we're seeing is transitory or the sign of like some new inflationary regime?