I see the past 2 quarters (Q4, Q1) of average weekly earnings increases are at levels that would have been considered normal pre-Covid. Yes, Retail employees wages are rising fast, but not Leisure and Hospitality.

Core PCE service inflation is high for restaurants, motels, recreation, airfare, and car rentals (isn't this the echo of Covid?). But not for healthcare, education, and finance. Can't anyone play the game of picking which line items they will and won't count in inflation?

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"Why not, if everyone has their own vine and fig tree, simply take your ease beneath them, and lead a good life?" I could point out that Original Sin took place in a regimen of more than "enough." Maybe in many dimensions resource scarcity was the binding constraint, but not all.

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How does one get sustained inflation when bank deposits (money supply) are falling, without either a collapse in confidence in functioning of the government, or an external shock of import prices or debt payments?

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Faulty premise. Money supply does not equal bank deposits. Money supply for the overall economy includes much more than that.

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Setting aside my parenthetical, in the parlance of a man long removed from an economics class, it seems to me that bank deposits are both the money that banks have created from lending, and the money accessible to households and businesses for consumption and investment if they choose not to borrow. Assuming that the US is not reverting to transacting with physical currency, and that we cannot access reserves at the Fed, bank deposits seem like an easy way to describe the money that is available, especially since time deposit penalties have been de minimus. When there is more money chasing the same amount of goods and services, then inflation is common. Conversely ...

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I was making a narrowly technical point. Consumers and businesses hold their liquidity in many other forms than bank deposits. E.g., for consumers and businesses: money market funds: $5.1 Trillion as of Mar. 22, 2023. Businesses: Repos (overnight contractual money). By businesses and investment entities: Treasury bills (terms as short as four weeks).

To your broader point, though, the money supply is going through a dramatic expansion and contraction cycle in an extremely short period of time. Thanks partly to government stimulus (federal, and some states such as mine - CA) in 2020, the money supply shot up by about 25%. But this was followed by the FED raising interest rates (to reduce the velocity of money), and then also by Putin's war (constraining the supply of a number of key commodities, including food grains and shipping capacity).

With those constraining elements the money supply (in its most liquid definition) has indeed contracted late 2022-early 2023. But not by much, and following that huge expansion. The Fed believes that the amount and velocity of money (which are pretty much interchangeable variables) have still not contracted enough to bring the rate of price increases down enough.

The hotly debated issue is whether the FED will overshoot, and reduce the money supply too much, leading to an overall contraction in the economy (recession). This after the government arguably overshot in the other direction (too much stimulus) in reaction to the COVID crisis. Note that stimulus was absolutely warranted, to keep people employed, buying what they needed, etc., but whether there was too much is what is embedded in the word "overshot."

The process is not over. If the FED keeps raising interest rates long enough, inflation will indeed come down to earth. Volcker's FED achieved this in 1980-81 (though he almost certainly overshot, causing excessive economic pain).

So to revert to your original point, we have had sustained inflation while the money supply was greatly expanded, and the effects of the money supply contracting have only recently been working their way through the economy.

p.s. I also took my last economics class a long, long time ago.

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