Q&A: Everything you wanted to know about inflation but were too horrified to ask

Why the thing we were told wasn't happening might actually be happening.

Though we’ve all heard the stories of sky-high mortgage rates from 40 years ago, millions of Canadians have never lived in a high-inflation environment. Yet as the pandemic starts to recede, inflation is indeed high, and seems to be moving higher still. Why is this happening? What should Canadians do? And at the most basic level, what is inflation? The Line interviewed Trevor Tombe, an economist at the University of Calgary, to get these answers.

Matt Gurney: I’m 38 years old, and contrary to the Tragically Hip song, I’ve kissed a girl, but I’ve never known high inflation. You and I are about the same age, I think. There’s millions of Canadians who’ll remember high-inflationary periods and have vivid memories of that, but there millions more like us — we have jobs and careers and families and houses and car loans and student loans, but no lived experience with inflation. We had new numbers out just [Wednesday] and inflation was not only higher than normal, it was higher than we’d expected it to be this time. So I’m hoping we can go over the basics here, starting with the most basic: what is inflation?

Trevor Tombe: Well, that that basic question has many layers to it. So I guess the simplest answer is that inflation is an average price increase for all goods and services throughout the economy. If one good or another goes up in price, that's not inflation. One good or service reflects whatever particular market circumstances are going on for that product. Prices go down for computers, clothing, things like that. But inflation is an economy wide, systematic increase in prices of everything — goods, services, and also the price of labour, right? Everything.

Gurney: I’m imagining that there can be isolated exceptions, though, right? Even against a backdrop of broad inflation, there might be a particular market force that drives down the cost of a particular product or service? Like if there’s a bumper crop of a specific fruit or a glut of Widget X?

Tombe: Yeah, absolutely. And we have seen that over the past many years, and indeed, seeing that continuing through the pandemic. So with globalization, increases in textile manufacturing in Asian countries, in particular, has really lowered the price of clothing. And indeed, that continued on through the pandemic, for some unique reasons related to people buying a lot less clothing than they did prior to the pandemic.

Gurney: [laughs] T-shirt and sweatpants, the new work-from-home uniform.

Tombe: Right. Clothes are cheaper now than they were in February 2020. And they're cheaper now than they were historically as well. But other goods rise in price. And so on average, that's what we're measuring. When we put together what's called the consumer price index. It's really just a summary of everything.

Gurney: I think I know what the consumer price index is, but let me take a stab at this: it’s a long list of items and services where we can track prices and then add them up to get a sense of what a typical individual or household or business is going to spend on them in a typical month.

Tombe: Exactly. And so there's thousands of goods that are going to be regularly tracked and compiled month to month by StatCan. And then that's aggregated up to what's meant to be a kind of representative basket of goods that people buy. Some goods matter more than others; we spend a lot on shelter. Our household budget is allocated to a great extent on on that. Cucumbers, they're in there too, but the weights that cucumbers have relative to shelter is a lot less.

Gurney: For basically my entire life, the annual increase has ben about two per cent. Sometimes a bit more or less, but that’s the expected number. The numbers that just came out a few hours ago were what, four and a half?

Tombe: Yeah, 4.4 per cent. So that's the September 2021 period, relative to what overall prices were one year earlier. That year-over-year measure is typically how we think about measuring inflation and you're right, that does tend to be around two per cent. That's kind of the midpoint of what our policy objective is. So Canada's set a range of inflation of between one to three per cent. So it rises, it falls, but for the past couple decades it really has remained in that range. This is the first time in quite some time that we have seen inflation kind of persistently above that upper threshold.

Gurney: You mentioned how we measure this year over year. That has to have been pretty weird during the pandemic, right? Because huge swathes of the economy were just turned off suddenly, and then 12 months later, you might see massive “inflation” compared to 12 months before that’s actually just a return to normal economic activity.

Tombe: Well, for the past many months, this year, inflation being higher did reflect the fact that prices dropped early in the pandemic. And you can imagine that is just a natural response to demand completely falling off a cliff for a lot of things. And so some of this has been a return to where we were previously or if prices had kept growing in February 2020, onward at two per cent. We have now exceeded that, though — we are through what we can account for by just returning to a pre-pandemic inflation trajectory. A return to that accounts for some of what we’re seeing, but not all.

Gurney: I might mangle the terminology here but I just want to be clear I understand this. So what we’ve been seeing in recent months is kind of a “reflation” — prices going up to where they’d have been if the pandemic hadn’t happened. But now we’ve gone through that point, and we’re still going.

Tombe: [laughs] “Reflation.” That’s a nice term, I haven’t heard that before.

Gurney: Keep talking, I’m going to go copyright that.

Tombe: Ha. Well, yes. You have it right. The drop in prices that we saw was for those first few months of the pandemic. And then things started to recover through the summer and the fall and early this year. But I think what we're seeing now is more than that, and some of that increased inflation is perhaps due to pandemic-related factors that have really disrupted a lot of things. So the supply chain issue that people are talking about, at its core, there are just too many containers trying to work their way through ports, and they're clogging the whole thing up. And so this is leading to these containers sitting in ports, ships parked outside of ports that usually aren't. This is really slowing down the delivery of products, inputs to manufacturers, products to shelves for retailers. So some of this could be a hangover effect, if you will, due to port congestion. So the really interesting question for me is, as that eases, do things get better, do prices come down, or do we still see this persistently higher inflation? That’s an open question right now.

Gurney: Again, we’re about the same age, and we might have had this similar experience: just as I was leaving graduate school and had to figure out what to do with my life, all of the sudden the news is talking about stuff I’ve only vaguely heard of: credit default swaps, subprime loans, Bear Stearns, Lehman Brothers, and so on. And I have this very specific memory of the summer of 2008, and I’m about to go golfing, and the news is just full of this stuff, and it occurs to me that I don’t understand any of it. And I don’t want that to happen again. So for those millions of Canadians who’ve never seen anything like this, what’s the big picture? Because ever since 2008, when we ran the printing presses, there’s been this confidence among many very smart, very senior people that inflation didn’t happen then, it won’t happen now. And then, poof, all of a sudden, some of those same serious senior people are hedging, and saying, yeah, maybe this is going to happen.

Tombe: As time goes on and if inflation remains higher, I think the concern among many, certainly central bankers is that people will start expecting inflation to be higher. And expectations, you know, this is a psychological issue. And I'm really not someone with the expertise to tell you how people form their expectations, but it's almost surely going to be related to recent experience rather than some kind of fundamental understanding of economic demand and supply conditions and so on. So as months of elevated inflation rates continue — and in the United States, they have had higher rates than we have for longer than we have — once people start to expect inflation to be higher, then they'll be formulating their plans and negotiating their contracts with employers differently. People will look at a two-per-cent wage increase very differently if they expect inflation to be higher than two per cent! So they might demand higher wages, they might demand higher prices for suppliers, they will behave in a way that itself creates the very inflation that they expected. So there is this feedback loop between psychology and the actual inflationary outcomes that we see. So look back a few months, when prices were rising, and the Bank of Canada said, hey, this is expected, we’re returning to where we should have been. But now, some are clearly starting to think about whether inflation will be higher than our desired amount. And that very thought process can create a really powerful force that leads inflation higher, and that would then lead central banks to change course. So I think it's responding to changing expectations. That's really how to understand changes in public comments by central banks in recent months.

Gurney: I have an obnoxious habit — well, a series of them, I guess — but the relevant one here is that when someone admits they’re wrong, I want to ask them why they were wrong. And that can seem really snotty, like I’m twisting the knife. But I don’t mean to. I’m just trying to find out what they got wrong. I’m just fascinated by the thought process that takes a person with the right training and all the right information to the wrong conclusion. So what do you think happened these last few months that caused these smart, informed people to suddenly change their own positions on this?

Tombe: With inflation expectations, thankfully, we can measure what large investors and market participants are expecting inflation to be. These are a subset of all people, of course, but they're putting billions of dollars on the line, betting effectively what they think inflation is going to be. So we can look in the bond market. And there are two types of government bonds. There's actually a lot more than two, but two relevant ones for our conversation here. One is inflation protected. So the amount that you earn, as a holder of that bond, is some amount plus whatever inflation happens to be as you're fully insured. And then there's another equivalent bond where there is no inflation insurance that's provided. And you can look at the difference in prices for these bonds to figure out what the average investor is betting inflation is going to be. So this is a really powerful tool to get a sense of where expectations are. And those have been rising. So if you look at the Canadian, what's called “break even” inflation rates on these bond markets, if we dial the clock back, actually, let me do that right now. [Tombe checks his computer.] I just pulled it up here, and going back quite a bit, it was below one per cent. If we go back to the middle of 2020, early in the pandemic, inflation expectations dropped even further. They've been rising pretty systematically for the past few months. Right now they're at about 1.8 per cent. So that's the expected inflation over a pretty long time horizon that's higher than where we were prior to the pandemic. So it's certainly within that one to three per cent range still, but that's a really strong signal that market participants are expecting higher inflation.


Gurney: Since the pandemic began, I’ve written a lot about early warning. I was a military historian before I abandoned that for the superior pay and job security of, uh, the media. But anyway, something you find in many wars and battles is that even when there is a surprise attack, with hindsight, there was intelligence warning of it, but it wasn’t recognized. The example I’ve used over and over in columns is that on Dec. 7, 1941, in Hawaii, there was a new radar position. It was a brand new technology and the men at the unit saw a big blob of something coming in toward Pearl Harbor, but they didn’t know what it was or what to do with that information. What you just described isn’t about economic data per se, that’s what market participants are expecting to happen. That’s psychology. Is there any reliable economic indicator that can be used as a warning signal for inflation? Like, “Uh oh, the price of X has gone up Y per cent, and that means this will happen.”

Tombe: [Pause.] Hmm. I think I have to tell you, no. I'm gonna say no. The bond market-based measure of inflation expectations, that's a really strong guide to what expectations are kind of as a whole. And so if that were to be way higher than it is now, I guess that would be a strong signal that something is wrong. It's still within the range, but it's risen quite a bit. And so this is not a signal that something's broken, or it's time to press the panic button. But it's drawing attention. I think, rightly, it's drawing attention to maybe what's going on. But we shouldn't think about inflation, today, as the same as inflation a year ago, or as a year prior to that, because this is an average across a bunch of different goods. Different factors might be driving things differently at different points in time. And what's happening right now, a lot of it is driven by higher energy prices, higher transportation costs, with gasoline being much higher. So that should lead policymakers to act differently than if it were a price increase of other products that maybe do respond to monetary policy conditions. The price of oil goes up and down and the Bank of Canada can’t do anything about that. And so in a sense, we should be more concerned about things we can control than things we cannot.

Gurney: The problem with energy is that we live in a frozen wasteland for half the year. And food inflation is getting talked a lot about, too. I might not even notice if my weekly grocery bill goes up $40 or $50. I just tap my credit card and leave. I might not notice my winter heating bill going up $100, and even if I do, I can afford it. But I am well aware of the fact that my financial security isn’t the norm. A lot of people can’t afford a few hundred extra bucks a month. So how do you think this plays out? Assuming a pretty reasonable assumption of this inflation persisting over the medium term, what does that mean for Canadians?

Tombe: That’s a great question. It creates winners and losers. What is inflation, but the rise in the price of of everything on average, including wages? But of course not all workers are going to be experiencing wage increases, some will be experiencing them, higher than others, and some lower than others. But if you're in a situation where your wages are keeping pace with average price increases, then you're more insulated than someone who's not. And so this issue of being on fixed income or not matters. Some pensions are automatically adjusted to reflect inflation, some aren't. So that's a clear source of winners and losers. Also, savers and borrowers. If you're in general a borrower, inflation's kind of good, because the debt that you took on is in dollars and most people's debt contracts are not adjusting how much you owe because of inflation. And so the real value of your borrowing shrinks with inflation. But if you're a saver, hey, the reverse is true, because your savings, if they're sitting there in a savings account, their real value, their purchasing power, shrinks. That's another source of winners and losers.

But the most interesting difference across people in terms of how they experience inflation comes down to what are the products that are rising in prices relative to others, because different people purchase different types of goods in different amounts. So the number one good in terms of price increases since February 2020 is energy and transportation. I walk to work. So I'm pretty well insulated from that. I'll feel it on home heating costs and utilities, but I don't spend a lot on gasoline. So my basket of goods is not the average basket. Whereas someone who commutes a lot more, maybe lives in a rural area or in a suburban area, their basket is shifted more towards transportation than the average. So the inflation rate for you and for me is different than that consumer price index. Shelter is the number two category. Depending on where you live in the country, shelter is a much more important cost for you as a family. Some locations are highly expensive, some are cheap. And then the third is food. And so depending on what your household budget looks like, you might be experiencing inflation that's actually even higher than the 4.4 per cent. Like if you drive a lot, live in an area where shelter costs are high, and food, maybe you have a few kids and they’re growing and eating a lot, so food accounts for a larger share of your spending than average. You're going to be experiencing maybe five or six per cent inflation. Maybe more.

Gurney: You mentioned gasoline and energy generally. You say that, I think fuel. I think of trucks and trains shipping everything we consume. And the transportation and logistics companies are going to pass that energy price increase right on down to us.

Tombe: It depends on the sector that you're in and how easy it is for businesses to pass on increased costs to the consumers. That varies. I think it's fair to say that for most goods, when the price of energy rises for everyone, like all your competitors, then that's going to lead to higher prices for consumers. Absolutely. And energy matters too because it's an input into the production of basically everything. It's involved in shipping. For services, you're using energy because the retail space or your hairdresser, like you have to light it and heat it and so on. And so historically, the inflationary episodes in the 1970s can be accounted for in no small part because of the incredibly steep rise in the price of oil at the time from OPEC embargo, the revolution in Iran and the Iran-Iraq war. Energy doesn't matter as much today as it did in the ‘70s. But it still matters. And so that's why rising energy costs do move the needle here on the overall price index for goods across the board.

Gurney: So a few weeks ago, just as I was thinking I’d better start getting up to speed on this, I saw a tweet by our buddy Ken Boessenkool. Can you translate what he said into person-who-doesn’t-get-any-of-this for me?

Tombe: Sure. So if we think that something is transitory, like if we think prices are high right now just because of supply chain bottlenecks, we just let that work itself out. Those are price changes that reflect real market conditions, those higher prices are creating a really strong incentive for these businesses to try and figure out a way to get their goods delivered because there's now a reward to doing that, or maybe it'll lead to new entrants into the sectors and then finally the inflation will come down, right? Think about lumber prices. They rose way, way up, and then way down again. If you're a central bank, you wouldn't want to react if prices a year from now are going to start to come down to a normal level. That's why they ought not to be responding to transitory factors. But if something is persistent, and this is why inflation expectations matter, that's when the central bank does need to respond. It needs to keep our expectations anchored at two per cent. Not because two per cent is a magic number, that's just the number we've chosen, right? It's not magic relative to one or three or four. But it’s what we’ve stuck with for decades, and that's what we should stick with, because there's all this capital invested in all these plans made around that two per cent. The entire credibility of the central bank is a function of whether or not it can achieve that target. The bank needs to think what's inflation next year, and the year after, going to be.

Gurney: Just to close the loop on what Ken said, when he said monetary inflation, he meant what happens when you have a roughly stable economy in terms of GDP, but you just start running the printing presses, right? You’re changing the math, because the numerator of the GDP is stable and the denominator of the number of dollars is changing so fast that the value of each dollar is dropping as the supply of dollars grows. I think I got the numerator/denominator thing right. I hope I did.

Tombe: [laughs] You got it. That’s exactly right. So inflation, historically, I mean the whole word comes from the money supply growing, and therefore the purchasing power of each dollar falls. Imagine if we snapped our fingers and doubled the amount of money that every person had everywhere. And we knew it was going to happen. So it wasn't some surprise. Prices would just double on everything, right? It would just be like changing the units. So inflation in that case would be entirely due to changes in the money supply. And the central bank can influence that money supply, through monetary policy, it can influence it through changing interest rates, but the central bank also buys and sells stuff. Through the financial crisis, the U.S. Federal Reserve literally bought a couple shopping malls. They didn't intend to, but they did. And so that's with money that is created by the central bank, it didn't exist before. And so that money creation, that can be a source of inflation. So some look to the central bank's balance sheets, and they say they have risen by hundreds of billions of dollars in Canada. That's new money. And so that does create this potential for inflation. I think we've been insulated from that because the new money ends up just going to banks, like Bank of Montreal, TD, and the rest. And what those banks do is they end up posting it back at the Bank of Canada. So the net effect has been pretty, pretty small. But that can change.

Gurney: Would we know if it was changing? We talked about early warning earlier. Can you tell the difference between inflation caused by a back up of ships off Los Angeles and monetary inflation because we printed too many new dollars? Can you guys tell what’s what, and say, hey, maybe it’s 30 of this and 70 of that?

Tombe: You would need to go product by product and think about what are the factors behind that. So the rising price of global oil prices? OPEC production is way lower than it was prior to the pandemic. And yet the pace of economic recovery has been stronger than many anticipated. And so there's some fundamental reasons, non-monetary reasons, for why oil is higher. And so that accounts for actually a good chunk of the 4.4 per cent rate of inflation. The September numbers. They would be 3.5 per cent were it not for gasoline. That one product drives nearly a full percentage point there. So that's a big chunk that's not at all because of monetary policy, but because of global oil markets.

Gurney: We talked briefly about supply chains above. Let’s put that front and centre now. One thing that makes me nervous about this is that it isn’t getting better. I’ve been reading up as much as I can, reaching out to experts, and I was hoping it would be like, oh, yeah, everything went nuts in February and March of 2020, but it’s working its way through the system now and will be over soon. But it’s not happening that way. A lot of this seems to be getting worse, not better. And then the way my brain works, I start wondering, so, like … what if there’s a nasty typhoon off Shanghai or LA? After the last 20 or so months, I don’t think I feel particularly lucky. Every time I go grocery shopping, there are items not on the shelves. Semiconductor chips are scarce. You can’t find spare parts for your car. You can’t buy furniture. And it’s getting worse.

Tombe: This is an extremely unique situation. And it’s very complicated. But let’s consider the specific issue of congestion at the ports. That's basically what is going on. Why is there congestion at ports? The pandemic led to massive changes in consumer behaviour. The amount of money we were spending on services went way lower, but we started spending a lot more money on goods. On stuff. On furniture for our home office. For entertainment equipment or exercise equipment. We started buying stuff on Amazon instead of shopping. But the capacity of suppliers to deliver that stuff has a limit. And we've bumped into that limit now. And that clogs up for everything in random unforeseeable ways, because maybe the ginger ale you wanted at the grocery store just happened to be in a container that’s in a ship off a port with a two-week delay to offload. And now with all of these containers sitting at ports and sitting on ships anchored off off the coast, it's becoming an issue about well, how do you then ship the products from Asia to North America because there's only so many containers. The whole market that connects buyers to sellers is changing and adapting, and that process takes time.

Gurney: That all makes sense. But if we can’t get containers of raw materials or necessary parts and components into ports, how long until stuff can’t get made or processed because the raw inputs aren’t available? And then how does that ripple out from there, when stuff isn’t just stuck in a congested port, but was never made in the first place?

Tombe: Right. A really stark illustration of this is in the U.S. for a lot of agricultural products. What sometimes happens is a container filled with goods from wherever lands in the States and gets unloaded. And then this container is then reloaded with some agricultural products from the Midwest and then shipped abroad. Now, the demand for these containers by producers in Asia is so high, like the price that firms can get for this container if they can get it to Asia is so high, that many are shipping them empty to Asia. Just turn it around and send it right back, without waiting to load it. That makes sense for them at these prices. But now if you're the farmer, what do you do? How much of these products are going to have trouble getting delivered? Right? These are perishable, how long do they last? I don't know. But that would be a situation where these kind of container supply chain issues actually do affect the real amount of goods that are out there. But again, this is because it's hard to adjust physical infrastructure and logistics quickly. Like in any market when prices rise, that's an incentive for suppliers to increase the quantity they supply, to figure it out. And sometimes that takes time. But for entrepreneurs, there's a real incentive to think about how to overcome these constraints.

Gurney: Before I began recording, you’d told me that you’re not worried about inflation. Your concern level is low. Why?

Tombe: So my level of concern is pretty low, in part because a good chunk of what we're seeing today is explainable by oil markets and things that are, I think, clearly, either beyond our control or transitory. But if there is a rise in inflation expectation, and like a real rise in these core inflation pressures, then I have every confidence that the Bank of Canada and other central banks around the world would raise interest rates. That would tamp down overall aggregate demand in the economy, easing that pressure on prices. And it's easy to raise rates, you know, unlike lowering rates, where you're kind of constrained at the bottom here, you can only lower them so much. You might creep a bit negative, but there's a limit to how you how far you can go there. You can raise rates. So stopping high inflation is just, from a technical perspective, pretty easy. And so my concern is not about inflation being persistently high. It's about what are interest rates going to do? I have confidence in a central bank acting. They have the tools, and I think they have the will. And so then the concern is just interest rates rather than inflation. And I don't mean to belittle that, because interest rates matter, and again, you’d have winners and losers.

Gurney: Again, we’re about the same age. We have jobs, houses, kids, and so on. And I was talking just today with a friend, also around our age, who recently bought a house. And I’m a nosy journalist, so I just asked, hey, what’s your mortgage? And she says, oh, about two per cent. And I say, what if it goes to five or six per cent? And she doesn’t even hesitate. She just says, “Oh, if it does that, I’m fucked. I lose the house.” Every few months there’s some new report about how Canadians are like one flat tire away from total financial ruin. And we have a whole generation that has never experienced high interest rates. I agree with you, interest rates would lower inflation, but the collateral damage could be huge. And there’s also government debts, too, right? We’ve added a lot during the emergency.

Tombe: It's really tough to be precise about exactly what fraction of Canadians are currently in a mortgage that they could not afford at three or four or five per cent, or whatever. I'm sure that data exists somewhere, but it's not really something that's readily available to me or to the public. I do tend to think that these stories about a massive share of Canadians being close to ruin are way, way overstated. But, yeah, absolutely, there's going to be many, in particular many in Vancouver and Toronto, that might be in mortgages that are very high, a very large share of the value of their properties. And maybe they're even in variable-rate mortgages. And so there's an immediate effect for them. And this makes it a challenge for the central bank for sure. This is why it's important for them to very clearly and transparently communicate their future intentions so that people can make plans today, appropriately. And when the central bank does act, it acts gradually so that people can adjust and so it doesn't spark some kind of crisis here. The Bank of Canada won’t surprise us all with a two per cent jump, today, effective immediately. They’ll creep them up by usually about a quarter of a point, and they wait a couple months, and then do it again. I think today, borrowers should not be making decisions that assume low rates.

With respect to governments, we know perfectly what government borrowing and balance sheets look like for the federal government and the provinces. Rising interest rates are not their problem. Ageing populations and health costs, that's their problem. That is massive, and they're not ready for it. The federal government, assuming policy stability, is on a slowly lowering debt-to-GDP ratio. But if interest rates rise to about five per cent, that's the rate where that decreasing trajectory becomes flat. Rates above five per cent present a longer-term challenge to the federal government and that would absolutely need to be responded to in the form of either higher taxes or lower program spending.

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Gurney: I was talking with Jen Gerson recently about faith in institutions and public leaders. We basically have none. We had months of strategic warning about COVID. We knew it was a thing and it was spreading. But we just kept hearing over and over that the risk was low, and when it did hit us here, most people were shocked. And we were not at all prepared. It’s very, very hard to believe that these guys could handle any other kind of crisis after they botched this one. So what does worry you? What’s the black swan that could screw this all up?

Tombe: The concerns people have are fair. What worries me is those expectations for future inflation getting too far away from two per cent. It's fairly easy for a central bank to control inflation, if everyone thinks that inflation is going to be two per cent. If we're all behaving in that way and making plans and signing contracts with suppliers and with employers and employees with that two per cent anchor in mind, well, then the central bank doesn't need to fight against all of these plans in order to maintain two per cent. So it's pretty easy for them. If they wait too long to respond —and I'm not suggesting it's easy, they have a hard job — but if they don't respond, inflation remains high for a long time. Let's imagine we’re here this time next year. And we've spent this entire time with inflation above that three-per-cent upper level. I don't think it's likely, but who knows. That's a problem. And then the central bank would need to respond much more aggressively with high interest rates in order not just to bring inflation down, but to show they’re committed to bringing it down. And we saw that after the 1970s. Expectations for inflation were really high. People were anticipating double digits. Those were the kind of contracts they signed and the kind of wage settlements that they reached. And so the central bank, then, to defeat that inflationary pressure, had to create an incredibly deep and painful recession. So that the early 1980s recession was in no small part because of monetary policy needing to bring inflation expectations down. So that is what worries me.

Gurney: You’ve told me you’re worried about negative psychology, and I asked you to end on a negative thought, so I’ll give you a chance to put something back on the record here — a final word of optimism, if you’d like.

Tombe: Ha! Thanks. I’d just re-emphasize that inflation is just an average across a bunch of goods that are each having different levels of price increases, or sometimes price decreases. A lot of what we’re seeing is energy related — oil-price related. OPEC production is quite a bit lower. And if they start to increase that, oil prices fall, then we might start to see the price index falling yet again. So we need to maintain a longer-term perspective. We don't want a central bank or policymakers responding month to month. They need to respond thinking about the the impact of their interest rate changes manifesting themselves economically a year, or a year and a half, down the line. So very gradual nudges to policy is what central banks ought to do, not wild swings from one month to the next. And so I think it's entirely possible that we're in a situation where, in the not too-distant future, oil starts to fall and gasoline starts to fall. And that'll be this negative pull on CPI. And then we just see what we're seeing now, but kind of in in reverse. Don’t look at CPI as a single number. Understand that it's aggregating thousands of unique circumstances, locally and globally.

This interview has been edited for length and clarity.

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