The latest research piece from the NYFed on their Liberty Street Economics website, "Inflation Persistence: How much is there and where is it coming from?" does not tell a good tale for transitory inflation. The authors construct a multivariate core trend (MCT) model which decomposes PCE inflation into common trend, sector trend, and common transitory shocks after taking out food and energy costs. The MCT inflation trend is rising and slightly below PCE inflation.
Inflation was stable across durables, nondurables, and services until 2021. The increases in inflation were across the board and not limited to just one sector. Service inflation has exploded to be the most important contributor.
The common components have risen significantly while idiosyncratic components fell and are now centered around zero.
Common inflation components are still rising. All major sectors are rising and there is little evidence to suggest that inflation has peaked. The Fed is behind the curve and will continue to be until it reverses the policy excess of 2020 that has shocked the markets.
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