Central Banks Need To Focus On What They Can Control — Brian Romanchuk

As expected, the U.S. headline inflation rate for March was punchy (possibly a short-term peak for the annual rate, at least), although core moderated. I am currently focussed on discussing the inflation experience of 2020-2021, and so I am not reading the entrails of the CPI report for predicting what is happening in the coming months. My view is that inflation is lagging indicator, and such entrail-reading is mainly useful for CPI components that have trend behaviour due to a smoothed construction methodology (e.g., housing). Various economic disruptions could easily move prices either way in the near run.

From the perspective of an inflation-targeting central bank, the problem is that most of these short-run effects are outside of their control. Realistically, all they can do is target the medium-term trend, which is likely to result in more rate hikes in North America. (The European outlook is clouded by a more severe energy shock.)

Bond Economics
Central Banks Need To Focus On What They Can Control
Brian Romanchuk

http://www.bondeconomics.com/2022/04/central-banks-need-to-focus-on-what.html