Research Briefing | Oct 15, 2021

US | It ain’t stagflation, but it sure is “M.E.S.S.I.”

It ain’t stagflation, but it sure is “M.E.S.S.I.” - iPad

It’s not runaway inflation, and it’s certainly not stagflation. In fact, the US economy is going through a bout of “M.E.S.S.I.” inflation dynamics – Moderating Expansion with Sticky Supply-driven Inflation – a rare phenomenon where strong, but cooling demand is met by constrained, but accelerating supply, leading to transitory, yet sticky inflation.

What you will learn:

  • Our latest assessment points to still-healthy inflation dynamics where inflation and demand are negatively correlated, and wage growth reflects a re-leveling of low wages rather than the onset of a spiraling price-wage inflation loop.
  • We estimate the risk of a structural shift from the current low inflation regime to a high inflation regime (i.e., persistently above 5%) is currently around 20%. But in our view the factors that led to previous regime shifts are not present now.
  • While it’s naïve to think the Fed can unclog ports, boost semiconductor output, or free labor supply, more hawkish monetary policy guidance will lead to tighter financial conditions, constraining demand growth as the fiscal impulse diminishes and supply growth accelerates. This should ensure inflation cools.

Back to Resource Hub

Related Services

Post

What AI means for economies, businesses, jobs & cities

Artificial Intelligence has the potential to fix the world's productivity problems, just as previous general purpose technologies such as steam power, electricity, and computers have, in our view.

Find Out More

Post

Australia: Flight to quality occurring but secondary markets may not be doomed

We believe the most significant policy measures to come through in the budget for residential building are the announced tax tweaks for build-to-rent (BTR) development.

Find Out More