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Try Not to Think About White Bears (and Inflation)
Inflation Expectations Matter, and Could Become Self-Fulfilling
This is a story about trying not to think about white bears — can you do that? Give it a try. “I’m not going to think about white bears…” Ooops, did you just think about white bears?! Let’s try this again: “I’m not going to think about…” Wow, every time you try to not think about white bears, an image of white bears keeps popping into your mind! That’s not surprising because research has shown that attempted thought suppression has a paradoxical effect, making the thought more likely.
Actually, this story isn’t mainly about white bears (but I really want you to think it is). It’s really a story about inflation, and how talking about inflation might make things worse, if our expectations become self-fulfilling. If we keep hearing that “inflation is up, but it’s just transitory, so don’t worry about it,” we might start thinking about inflation (just like trying to not think about white bears), which might cause us to watch price increases more closely, which may lead us to demand a higher salary, which might cause prices to rise even more as labor costs increase. Expectations matter. I’ve got lots of charts that tell the story of inflation and expectations, but I also don’t want you to fret about inflation. So, for every one of…
