A nice example of how crazy the inflation debate has gotten in the last few weeks comes from Nordea, a generally very sensible crew:
The transitory vs. permanent inflation debate seems to be over as almost all consensus economists except for Christine Lagarde have started to warn against the current inflation pressure. The dark horse in the Fed chairman race, Raphael Bostic, even labelled transitory as a “dirty word” during the week. The sharp rise in the trimmed CPI measures was probably the final nail in the coffin for the transitionistas, even if we find reasons to start doubting the inflation outlook for H2-2022 exactly because of the sharp rise in these trimmed inflation measures. If average inflation levels have structurally shifted upwards, it likely also means that inflation volatility has shifted markedly upwards. We by the way prefer the word structurally to permanently in this inflation debate, since promising a “permanent” shift is quiet the time-horizon to forecast.
The recent energy price surge is a reminder of how the Green New Deal will continuously add to inflation volatility in the coming years. The more weather dependent an electricity production, the larger the natural volatility in the price. We just as well want to remind you that we can get years of almost “free electricity” (before taxes) in parts of Northern Europe if the windfarms suddenly deliver 2-2.5 std-devs above the expected outcome in sharp contrast to this year.
Chart 1. Winners and losers of the energy crisis (the further the right in the chart the better)
