Thank you for the correction.
As I was saying, the U.S. and Canada treat housing differently, and both nations have changed their measure of housing prices since the 1980s. There's no right or wrong in this, but it reflects that a discretion of judgment is involved.
Fourth, the CPI itself is a limited measure of inflation. For years, the Bank for International Settlements has urged central banks to look at the price of financial assets and not just the CPI, partly because, rather mysteriously, much of the post-2008 stimulus appears mostly in the price of financial assets and not the CPI.
Statisticians don't know precisely what inflation is, nor can economists be sure where it is headed, although it seems likely to stay elevated for some time. Daniel Tarullo, former governor of the U.S. Federal Reserve board, wrote how economists don't have a working model of inflation. While inflation is clearly related to the money supply, defining the latter is difficult, and its relationship to inflation is imprecise and variable. The Phillips curve relating inflation to unemployment has been broken down for years, if not decades.
Finally, expectations have proven to usually react to and not predict inflation, although rising expectations today will help reinforce inflationary pressures as workers demand higher wages to compensate for lost purchasing power, making it harder to rein in inflation.
Kevin Warsh, also formerly with the U.S. Federal Reserve board, recently wrote in The Wall Street Journal that it is misleading to dismiss inflation as just “supply-chain bottlenecks”. Saying that consumer prices are higher because “prices are rising at the points of production, assembly and transportation” describes the manifestation of inflation but “not its source”, which is excessive fiscal and monetary stimulus. Monetary stimulus actually damages aggregate supply by discouraging investment.
Anyone who states they know precisely what inflation is and where it is heading is exaggerating. Unfortunately, economists routinely exaggerate or fail to acknowledge the limitations of their understanding of how the economy functions. This is especially true when it comes to price inflation.
I look forward to your questions.
Thank you.