Comment by timr
14 days ago
You're just using new terms ("cost-push inflation") to disagree without actually disagreeing.
> so of you care just about near-term price levels, the same monetary interventions make sense as for demand-pull inflation....Cost-push inflation tends to be an effect of forces outside of monetary policy which tend to slow the economy, so throwing tight money policy on top of it accelerates the slowdown. This is particularly bad if you are already in a recession with cost-push inflation (stagflation).
Again, you're just saying the same thing that I wrote above, but arguing (?) that it's actually called "inflation".
If your point is that tariffs are bad, fine. We both agree that what you call "cost-push inflation" is not something you'd rationally raise interest rates to counter.
Increasing cost of imported goods will increase demand on equivalent domestically produced goods, which are also often supply constrained. Locally produced goods will increase their prices as much as the market allows (which is somewhere around the cost of the imported good with the tariff). Tariffs cause inflation as a whole.
When the tariffs are dropped, do you think the price of the imported good is going to go back to the original price? If the domestically produced version is priced near the tariff price, they'll reprice slightly lower than the domestic price, ensuring prices stay high.