Alberto Cavallo: Thank you so much. It's a pleasure to be here. So as you can imagine these days, I'm getting asked a lot what will happen with inflation next. And Michael, you have really raised the expectations here that I should find out, but I love to ask you that question. Oh, no, no, sorry, I forgot. I'm asked always to remind you of what's new with Price. As many of you are aware of the type of work we do. So I just wanted to highlight some of the new indicators we have released in the last year or so. You're looking at essentially the launches we did in 2022. We have always collected inflation in about 22 countries. We're expanding that this year. We added inflation series for Mexico and Poland throughout the year, and we're also expanding our PIP series. So for those of you who are not very familiar with those indicators, they are not just about inflation, but they're actually trying to leverage the wealth of information we have on identical goods we can match across countries and build these indicators of how expensive goods are in one country relative to the other. So we are launching several new indices, the Canada and Mexico series, where you can compare prices to the US, and one that I'll show you today, the US Dollar PBP series, because as you know, the dollar has been getting more expensive in terms of the nominal currency but also in terms of inflation. So I'll explain why I think that is important also for inflation dynamics. But let me start with the question then. This is the question I get asked all the time. Has US inflation peaked? So let's find out. Raise your hand if you think the US inflation has peaked. All right. So a little bit less than half. You're very brave, I should tell you, because every time someone says it has peeked, they've been wrong. No. So but I'll try to to share some information that will allow us to answer better this question. So first, when people think in these terms, they usually focus on the annual inflation rates. These are several indices, comparable indices, the CPI, two indices that will produce a price, that's the original one in red. And then in green. I've added a new one we have where we've added some sectors that have been particularly volatile during the pandemic, including, for example, used cars and trucks and things we can still find online. And then you also have the PCE measure, which is the one that is preferred by the Fed. Now, if you look at those numbers, when people see a little bit of a decline there towards the end, they get excited by the idea that finally US inflation has peaked. And it's normal to focus on these numbers because that's the one that gets advertised on the news all the time. That's the 8.3% in August that we saw that now has declined a little bit. But the problem with this number, of course, is that what we're seeing today depends not just on the trend of inflation right now, but what happened 12 months ago. Those are the so-called base effects that affect these indices. So some people actually prefer, when they are thinking of this problem, to focus on the monthly inflation rate. And these are the changes within a single month. And I'm plotting in this graph chart the same indices. But now the 30 year change in the index, if you focus on the last few numbers we have seen, both in the CPI, in the price numbers, those are actually quite good. They are relatively low. But of course, once again, we should be thinking how does this compare to 12 months ago? That's the first comparison we should make. And secondly, perhaps even more important, how does the trend of inflation look? So perhaps we should not just focus on the 12 months before, but rather on how this this evolution of the monthly rates behaves over time? Now, as you can imagine, this gets very confusing. You're going to get people giving you different answers. I think I have a better one. Instead of focusing on these two, you should be looking more at the actual price index. Most people forget about this and they focus on the rates.
But if you look at the price index and think of it as the actual price level that is used to compute the inflation rate, you see pictures like this, this is the US index that we create a price that and what I've done here is I've drawn these vertical lines to, to mark several periods where we have seen that trend of inflation change. You can think of those as inflation regimes during the course of the pandemic and there was clearly a time towards the middle of 2021 and the beginning of 2022 when the inflation rate was already quite high. But by the way, let me clarify the slope of this line. That's the trend of inflation. Now, without having to constrain ourselves to a particular period of 30 days or 60 days. But just think of the slope. It was pretty worrisome already at that time. Now things got really bad at the beginning of 2022, so the slope becomes a much deeper. A lot of people think that's because of the war in Ukraine. Actually, you can see in our daily indicators the direct impact that the war in Ukraine had by that is sudden increase towards the end of March. That was pretty dramatic. No, but things prices sort of stabilized and went back to that trend that had started before the war. And the good news is, if you look at what's been happening in the last two or three months, we seem to be on a new trajectory. The slope of this line has gotten flatter. So this is actually something that we can do better than just visually. We can apply techniques that have been developed in the past for business cycle theory to identify changes in trends of of time series. And it's hard to do when you have data on a monthly basis, but when you have daily indicators, you can actually perform these pretty well. And just to give you an intuition, what the technique does is it looks at the regression of the slope and look at the coefficient of that slope and try to take they take the time when the change is greater. That's the way you can identify a change in the inflation trend in the index. So what would happen if I applied it to this particular index that you have on the left or to the eurozone index that we have on the right? That technique suggests that there was indeed a structural break in those indices, negative rate. So the slope becomes a lower or in some cases negative. As you can see, that happened in June 14 in the US index and on June 23rd on the eurozone. Now, many of you are probably thinking what is driving this? This is probably energy. And you're absolutely right, Energy was one of the greatest drivers of this change in trend. So let me start. Go into more disaggregated sectors because that's where the value of this technique will be. We can do this at greater levels of disaggregation and count the number of sectors that are actually experiencing this. If I showed you the first level that's breaking out the hit, the main headline sectors that we have in the US, you have fuel and you have food. And there's a very different picture here. So fuel on the left, big change around June. You see now the trend is actually negative. That's a decline that is pushing the aggregate number down. And unfortunately for food, there's no break at all. In fact, there was a period that you see there in April where we were sorry in July that we were actually detecting the higher increasing prices and we went back to exactly the same trend it was before, where very worrisome element of headline inflation in the US right now. But let me go deeper. I can actually also look at core goods and show you a bit what's happening there to try to focus more on the measures that in theory the central banks may pay more attention to. And I split two sectors in particular that we measure in price that's on the left. You have households in furnishing a very important sector for core goods in the US. That certainly had a breaking trend. You can see it actually visually. The statistical technique identifies that on April 10th of this year, roughly around the time when the Fed was increasing rate. So this is the type of behavior you want to see in these indices, some sort of change in trend reacting to monetary policy. Unfortunately, some sectors like health care that you see on the right are actually experiencing a trend break, but in the opposite direction. They are experiencing even more inflation than what we saw before. But as I promised you, the advantage of this is doing it within even more disaggregated sectors. We could even get to product level statistics. But I'm just going to show you the level of aggregation where they're the most disaggregated sectors, where we have official weights for the CPI basket. And those are the 55 sectors that you see listed here. I'm just showing you a distribution, counting the number of sectors that have experienced a change in the in the trend. And I'm actually measuring how much of a change it is. So for example, we had a certain slope of inflation and suddenly we have less you would see a negative number. And just to give you a sense of the magnitude of how big some of those changes are, I'm analyzing those changes across some sectors and then there are sectors are going to have a positive trend break. Those are the ones that are going to be to the right of zero. So if you look at this picture, one thing that emerges quite clearly is that there are certainly some sectors which, by the way, have big weights on the CPI basket that have experienced that change in break, everything related to fuel, not just the fuel that we buy for cars, but the fuel that affects housing, which gets an important weight in the CPI basket. Those have had a very big changes in inflation trends, if you count all the the sectors. And even better than that, we can go and not just count them, but weigh them by the importance of the CPI basket and estimate the share of the CPI basket weights that have experienced a negative a trend break. You get the numbers that you see listed there on the right. About 47% of those sectors are now experiencing rates of inflation that are lower than what they were before. Now, there are unfortunately some sectors that are having positive inflation breaks. Those are the sectors are going to pushing the inflation rate up while it starts to fall overall. But the fall is not going to be as quick as many people expect because those sectors are still pushing prices up. Now we have some uncertainty as well. There are about 24% that have no trend break at all. So those are things that we're going to keep on watching. Now, the US has evolved positively on this trend. So what I'm showing you here is that 47% number that I showed you before with negative trend breaks, how it evolved over time. No. And certainly there were a few sectors that were already showing positive signs in April when the Fed started tightening. But there wasn't where most of the of the break in terms of the weight of the basket actually happened. Those happened around July and more recently in the month of September, we saw some of those happening. The red line that you see there, those are the positive trend sectors, as I mentioned, that will keep on putting inflation. But how does the US compare to other countries since we collect data not just in the US but other countries as well, with exactly the same methodology, we can apply this to other countries. I've what I've done here is showing you the sheer weight in different columns. You have the share of negative, positive and zero trend break for each one of these countries. And then I've calculated the difference between negative. Even positive. So the higher the number there on the last column, the better it is in terms of showing signs of lower inflation in the future. Now, those trends, which again are not constrained to a certain month or time period, they're just detecting whether we are, during the course of a year, experiencing a break in the trend. At the top, we see Russia. It sort of makes sense. Russia had a ramp up of inflation at the beginning of the year with the war in Ukraine. Nearly 82% or 86% of those weights are actually now showing lower levels of inflation. So we should expect the aggregate to fall quite quickly. On the other extreme is the most important country in the world where I'm from, Argentina, always a leader in something. And fortunately here we are a leader. If you turn this around, but we have 99% of the sectors with a positive break in trend, so inflation is certainly going to go up. So as I mentioned, where is the US? It's actually quite high up on that. On that list you see there, there's a 23% difference. So 47% of the weights are having less inflation and we have 24% of the weights having more inflation. It's a good sign. It suggests that if this continues in terms of headline inflation, we are past the peak of of the of the annual rates that we were seeing before. If you focus on which countries seem to be having more problems, clearly at the bottom of the table, you're going to find the European countries, the UK, Italy and some countries in Asia, like Japan, where we are actually detecting in this disaggregated data, even rising pressures. Those are countries that are still far away from the peak, at least according to to what these numbers are suggesting at this time. I always get the question, okay, but what about course? And that's what the Fed is supposed to be looking at. I actually disagree. I think the Fed should be looking at food and energy a lot these days. But let me show you what the core numbers suggest. Those core numbers are a bit different. As I showed you before. On a graduate level, we have this this mix of sectors. In the case of the US, in fact, a nearly for every country from Brazil to the way down, we have a negative difference there. We have more sectors with higher trends of inflation that sectors with negative trends. So it would seem that the US is a little bit further away from reaching a peak in core according to this technique. And on the top we have roughly the same countries we had before Russia, China in terms of supermarket inflation. We've seen some significant changes in deflationary trends there and we have a few countries in Europe and in Latin America also showing a decrease in these rates. So we have perhaps we are past the peak on headline. We're still not back to a peak in core. As I mentioned at the beginning, everyone who makes the claim that we are past the peak is usually making a mistake. So the question that comes often is why is it that inflation has been so persistent for so long and we keep getting this wrong? So I'm going to focus on a few things that I think are particular for us to remember. If we focus on COVID and what happened as a crisis itself, one of the first things that we should always remember is that this is not just a crisis of demand, it's also a crisis of supply. It became quite obvious as you looked at the events unfolding even at the beginning of the crisis. So an advantage of using the data. We have a price that is that we not only see prices, but we can also see things like whether items are out of stock or not, whether they become available or not to consumers. And we can use that information to build indices of stock outs and shortages over time. So that's what you're looking at here. You can see a measure of stock outs in the US weighted the same way the CPI basket was weighted. So just to make sense of these numbers, if you look at 2019, that suggests that every time someone goes and tries to buy something, they may find about 10 to 15% of items being out of stock. That's roughly the normal level that we have in the retailers that we monitor. Now, obviously, when the pandemic hit, lots of things went out of stock, not just toilet paper, but you may remember that was very clear that everything was hard to get.

Those numbers rose to around 45%. And then we had a gradual improvement, which was source of relatively good news. The decline was obviously much slower than before. Unfortunately, though, in November of this year, we saw those numbers rising again. There was evidence that the supply pressures that are shortages that we thought were going to be a thing of the past kept on becoming quite persistent in the data now. And I've listed a few of the different reasons that could be driving this. Some of them are more important in certain points in. I'm of the pandemic, but they certainly all played a role. Now, interestingly, if you look at what happened in the sector level, what we found is that at the beginning of the crisis, every sector was affected. But as the crisis evolved, the shortages became more concentrated, particularly on food and beverages. It's a sector that seems to be greatly affected by transportation issues, labor shortages, and obviously as well, trade has played a role there as well. And you can see those numbers are actually nearly as high as what we saw at the beginning of the pandemic. You may not notice this when you go to the stores, by the way, because not like you see a lot of things that are out of stock or the empty aisles. What has happened is that there's less variety of products available for sale. Some of those varieties, by the way, may be redundant.

Alberto Cavallo: We may not need them in equilibrium. They may never come back. No, We can think of some products that are completely perhaps not highly demanded, but there is a big share of variety that has completely disappeared in food. And we've seen some increases in health more recently. Not surprisingly, those are two of the sectors that are actually right now experiencing more upward pressure on prices in the case of the US. There are obviously other factors that I don't have time to to address, but I wanted to focus on the issue of inflation expectations. That has become quite important in discussions about what's going to happen in the future. And there are two things I want to emphasize coming from the academic literature. One is the last ten years or so there has been a lot of research, and I've participated in this literature trying to document what drives consumer inflation expectations, which are obviously very important to determine how they're going to negotiate their wages, for example. And the literature has concluded many things, but I want to highlight two. One is that there's evidence that in consumer inflation expectations is driven mostly by the actual experiences of purchasing, of going and buying things out rather than information about what the official statistics suggest or what the Fed is doing. And the second thing that the literature finds is that people tend to react more to prices rising than prices decreasing.

Alberto Cavallo: And I bring that up because I think there are two things that are happening right now that are potentially having a big impact on the way consumers are perceiving inflation. First of all, I focus on food inflation and I'll just emphasize how high it is relative to what we have seen before in the US. But second, there's a hidden source of inflation and inflation inequality that we don't really measure with our official statistics, which is what happens between premium products and cheaper varieties that are getting demanded a lot more these days. So let me focus first on food inflation as a driver of inflation expectations, just to highlight what our numbers have shown in the last two years, I have plotted the annual inflation rates in the Emerging Markets Index in the US and eurozone food indices. These are just full. What you can see on top of normally emerging markets have a lot more food inflation. It rose a lot at the beginning of 2022 because of the war. And you will read a lot about the crises in emerging economies with food. Now, if you look at it historically, those numbers are not not necessarily that high. And the truth is they have been coming down lately with commodity prices falling a bit in terms of food. What is even more dramatic by historical standards is the other two lines that we have here.

Alberto Cavallo: What has been happening with the US and the eurozone, sort of with the lag. We have always seen in our data that things first happened in the US during COVID and then they happen in the eurozone. You see that ramp up of food inflation. Right now, food inflation in the US is higher on an annual basis than the average of all the emerging markets. We, we, we monitor and by historical standards is tremendously high. And as I mentioned, this is something that will matter because we certainly have falling gas prices. But people, I think, will pay more attention to the rise in food, food inflation. And then the second thing I wanted to highlight, if you talk to people these days, many of them have the impression that perhaps inflation is higher than what it actually is and beyond conspiracy theories that think the government lies about inflation, which I don't think is the case in the US. Let me be clear. There are things that we may not be measuring well enough, and one of those things could be inflation inequality within narrow categories of goods. So it's common also to read that people are trying to find alternatives to the goods that they bought before that have increased in price. There's naturally in times like this, a desire to switch to varieties that are cheaper. So what I'm doing in this chart is actually measuring the inflation rate for expensive and cheap varieties.

Alberto Cavallo: How do I actually do that? When we go online, we can see prices for all goods within very narrow categories of goods. So think of, for example, of milk. We can see packets of milk that are more expensive than than others. Unfortunately, if you just focus on the price, you can get this really wrong because you may have different package sizes for those things. But for a few retailers, we actually see the unit price. We can see what is the price per litre or the price per gram, and that allows us to rank products between premium and affordable or cheap at the beginning of the pandemic and follow the evolution of inflation over time. And that's what you would find. I have four lines here separating goods between expensive and inexpensive ones. The red line shows you the evolution of the cheapest varieties. Over time, they've increased nearly 20% over the course of the pandemic, compared to just 5% for the premium varieties. This is problematic for low income households that traditionally buy the cheaper varieties, but also for those who are hoping that moving to cheaper varieties will allow them to shelter beat their inflation rate, they're actually experiencing higher levels than than what they would hope for. And you have the annual rates there. It's quite dramatic, 15% for the cheaper and only 7% for the others. But I wanted to end with good news.

Alberto Cavallo: So I'm just focused on two things that I see on a micro and the macro that I think are good news. Relying on our data first. These numbers are hard to see here, but they just plot the number of sales that are promotions that are available over time in the retailers. We monitor and we can compare the levels we see today to what we saw in the past. An increase in promotions suggest that we may see a decline in inflation in the future, at least that we're going back to some normalcy in terms of sales behavior that we had in the past. You're looking at three graphs clothing, furniture and electronics. In two of them, we're back at levels we had seen in the past. They've come up. The number of sales have come up, particularly in the case of furniture. It's just as it was before the pandemic. And in electronics, we are actually at the highest level we had seen in four years. So they're actually higher than what we saw before the pandemic. You still don't see it having a big impact on inflation rates in these sectors because the sales magnitudes are not that large enough. But certainly this is going on a good trend for those hoping to see some milder price increases in these sectors. And then the other one is more of a macro story. That I wanted to emphasize. As I said at the beginning, we measure these peep indicators.

Alberto Cavallo: We're launching what we call the dollar PBP index. This is simply trying to capture the cost of a basket of identical goods so that there are thousands of goods that we marched across countries and it compares the cost in the US in dollars to the cost in seven large trading partners that the US has. So this is the actual comparison of of how expensive the basket is for consumers. And you can see the y axis suggests that in normal times, or at least before the pandemic, the cost in the US was about 20% cheaper than what we saw in other countries. That actually fell a bit in at the beginning of the pandemic with some deflation here and the depreciation of the dollar. But now it has skyrocketed for two reasons I want to emphasize. One is just the appreciation of the dollar that has is certainly explaining much of this. But the other one is that the US has experienced more inflation sooner, in fact inflation than many of its trading partners. So today the basket is only about 5% cheaper. What does this mean? Well, it means that it will put pressure on the tradeable goods sectors. This pressure or if you think that the 0.8 is the normal thing for us to observe, this pressure can be relieved by a depreciation of the dollar. And if that doesn't happen, the pressure will come through downward pressure on prices.

Alberto Cavallo: So there's evidence that that could start affecting us as a positive side in terms of inflation in 2023. So let me just conclude, emphasize a few things. I think we're past the peak of headline inflation. It doesn't mean that the inflation threat is over. We're certainly still in the midst of it, but we are past the peak. I also clarify there in the absence of additional shocks, because that's a problem when you make these predictions, then we have another war somewhere else and then everything goes in a different direction. But I think we're past the peak in headline, not yet in core. Our numbers do not suggest that that has yet happened. Why does inflation persist is so highly? I emphasize supply disruptions that we measure with stock are indicators there certainly still volatility in commodity prices. And I think we should be paying a lot of attention to these food inflation patterns that we're seeing in the data as being a big drivers of inflation expectations at the consumer level. So these are key sectors that I think we should focus on for in terms of us inflation moving forward. But the good news is I think the tradeable goods sectors will relieve have the side effect on inflation that is actually beneficial for the US moving forward. So I'll end with that. Happy to answer any questions that you may have.

Michael Metcalfe: I have a couple on the app, but why don't you take a seat and we can. While the audience is just thinking of questions. I've got I've got two on the got two on the iPad here. And so the first one actually and this is something that appeared in Kristen's talk as well, actually, it's. Have you done any work on the role of wage growth in the recovery and how it's interacting with current inflation trends?

Alberto Cavallo: No, we do not ourselves collect data on wages, but it seems from the information that the BLS collects is that wages are catching up with inflation. What you don't see yet, in my opinion, is a wage inflation spiral, which I characterize as a as a wage increase that is not just trying to compensate for past inflation, but rather it's trying to anticipate future inflation. So if you go to countries like mine that have experienced high inflation for a very long time, it's very common for people to try to get ahead. So by that, you know that inflation will eat away some of your purchasing powers. And you know, you don't negotiate your wage all the time. Some people cannot index it very well. So what you do when you have a chance to negotiate is you not only try to get a compensation for what happened in the past, but you try to anticipate what will happen in the future that leads to wage inflation spirals. But I think that's something common in countries that have experienced high inflation for a very long time. That's not the case of the US today. So certainly wage negotiations and all this wage pressure is going to keep putting upward pressure on some costs. But I am not particularly concerned that this can turn into a wage inflation spiral, particularly now that the Fed has decided to take inflation seriously and is tightening rates.

Michael Metcalfe: And do we have any hands? Yeah, we have one here. Yeah.

Audience: Thanks, Alberto. So a quick question on when you mentioned at the end to focus on housing. So what do you think about the lagging effect of OCR on its contribution in CPI? Because we have starting to see some more real time housing data to point towards lower shelter costs, but OCR haven't reflected that yet.

Alberto Cavallo: Yeah, so the OCR component and the way the BLS produces these housing statistics tends to introduce a smooth lag into the patterns of inflation compared to what you may see in some indicators that collect data on available wages. And is that is that not because the US is doing its job badly or wrong? It's just that when you look at those wage indexes that use data from companies like Zillow, they're simply taking an average of available wages, and the composition of the apartments that become available can change over time. So it can lead to very wide movements. In some of these they be less and all statistical agencies, they try to measure the cost of a comparable basket of housing over time, and they actually sample that only twice a year. They do some smoothing in between. So that introduces these slow moving trends. So I think certainly with the data we're seeing right now for housing in the US is is catching up to that upward pressure we saw before in those indices, those down that downward pressure that you're seeing now in the average rents, that is going to put downward pressure on the r e index, but that's happening six months from now. Not necessarily. So. I would expect bottom line housing to be one of those sectors that gradually continues to put upward pressure on prices for at least six more months.

Michael Metcalfe: Max the frontier.

Audience: Thank you, Alberto. You must have very good karma. Having dedicated so much of your research to inflation, and now this being the number one story for this year and years to come. Thanks for the presentation. My question to you is, over the past, I would say three years, you've you've published a lot of very insightful papers on inflation, looking at the microstructure and the changing patterns of the resulting from the pandemic and all these things. And you've alluded to a couple here looking at sort of the premium category of goods versus the cheaper ones and how inflation is behaving differently. What can you tell us about how central banks and especially the Fed are incorporating all these innovations in their inflation sort of analytical framework? Because I mean, by and large, they've dropped the ball on it over the past few years and they now must be looking at how they can improve.

Alberto Cavallo: Yeah. So I personally think that the the realization that is happening not just in central banks but in many government offices is that we have the opportunity now to measure things differently than we did before and some dimensions better than what we did before. So there's a big effort by even statistical agencies to to collect data in different ways than they did in the past. And I wouldn't call the Fed the Fed for a while. And many other central banks have been aware of this and trying to pay attention. One of the problems that arise is with all the alternative data is that some indicators that really one story and others tell you another one. So you're not sure exactly who to believe or what to believe. What we have to do is resist the temptation of thinking there's going to be one indicator that allows us to predict the future. That is not going to happen. And we make that always very clear with price that we're not in the business of forecasting what will happen. We're in the business of measuring well, what's happening right now from different dimensions. And our indicators should be used in combination with others to get a better sense of different forces that are playing a role at a given point in time. So I think that's something that governments are realizing that they can leverage this wealth of data in ways that they couldn't do before and not necessarily just focus on one indicator, but in a set of indicators that may become more or less important at different points in time. I think that's the right mindset. And for example, there's there seems to I mentioned it in my in my talk, there seems to be this impression that was true in central banks, I think, ten years ago that we should just look at core inflation. That's no longer the case. My impression is they're realizing they have to look at not just headline core, but other ways to slice the data, to have a better understanding of a very complex system which are economies now.

Michael Metcalfe: So I've got a couple of really intriguing questions on the app here, both on China and let me just try and fold them together for you. So do you think service sector inflation will increase once China reopens? In other words, Chinese tourists coming back out to boost demand in G7 economies? And if so, will that have a knock on effect on consumer goods prices? And then just on the stock outs, how much of the stock outs you think can be attributed to China's zero-covid?

Alberto Cavallo: So on the in the stock outs, we generate those indicators. Also for China, we saw the Chinese stock outs increase as a direct effect of the lockdowns at the beginning of the year. And then we saw with the lag sectors that rely heavily on imports from China also had an increase in stock outs. In fact, health care, I showed you the numbers for the stock in health care. I think one of the reasons that could be driving that increase is the fact that many medical products actually in the US are imported from China. And so there are follow up effect of those lockdowns. So in that sense, you might expect that to be less of a of a permanent increase in prices. So that's the first question. The second one is more speculative about what happens if China does better or not moving forward. Certainly if if China starts doing better, that has an impact on commodity prices and it could also have an impact on its ability to supply goods. But I think it's it's hard to draw very clear distinctions about what will happen in the future. I'll just focus on the fact that we are seeing lower inflation in China. We've been seeing for a while there's a clear indication in our data of a slowdown, particularly in the sectors that we monitor, which are more about, in the case of China, more about groceries. There's a very weak demand apparently there that is driving some of these prices down. It's been happening for a while.

Michael Metcalfe: That's a good question. I don't see any other hands. I've got more questions here. So let me press ahead with the with the iPad. So the question about the inflation inequality you mentioned is that is that unusual to this cycle that the fact that we've got this inflation inequality and what do you think causes it?

Alberto Cavallo: So we don't know if it's unusual or not because it's never been measured before. Right. I suspect it's particularly important in times of inflation increasing very quickly, because what could be driving this? There are two factors. One could be a demand story where people are trying to escape, let's say, or avoid the higher inflation by switching from premium brands to cheaper brands. That's an increase in relative demand for the cheaper brands that push prices up more. There could also be a supply side story that is more particular perhaps to the pandemic, which is the story that cheaper varieties tend to have a bigger share of their total cost. B more raw inputs or commodities, if you will, whereas premium goods to produce them, you have to spend a lot on advertising, a lot of services and other things. So those are a bigger components. Certainly in the last year or so we've seen a lot of volatility in commodity prices, so cheaper varieties end up having this ramp up of inflation right now. That could be more specific, but I think it's a phenomenon that is more likely to play an important role at times of crisis. So to connect it to your question, for example, that's something that may be normal times policymakers wouldn't worry about and don't need to worry about measuring. But at times like this, when we get these type of shocks that could have big distributional consequences, that's exactly the time when you want to measure it better.

Michael Metcalfe: Right? So so this this last one, I'll take it from the app. This is probably maybe the most optimistic question we've seen so far today. So in equilibrium, why don't we see prices go down? In other words, negative inflation more often? Why do prices tend to go up much more often than they go down? Yeah. Could we go back to deflation?

Alberto Cavallo: Goodness, yes. In which case, our indicators will also be interesting because it will be.

Michael Metcalfe: Less.

Alberto Cavallo: Less volatile, but in the opposite direction. No, it's a matter, I believe, of of several things, but one of them is policy. Policymakers like to target a slightly high or higher than zero rate of inflation because there's this belief that deflation can be very negative. If you enter that territory, you could end up in these depression cycles, as we saw in Japan, where expectations are negatively affected. If consumers think that prices are going to be lower the next month or year, they cut back on their spending, which exacerbates the recession and leads to depression. So most policymakers like to have it around 2% or a little bit higher. Those, by the way, those targets are going to be positive. And there's a lot of discussions now on whether they should, instead of being 2%, should be 4%. But but that's the there's I think, an open ended question at this stage of how structurally our economies have changed relative to what they were before the pandemic and what should be that level that central bankers target. I am less focused on the level and more on the connection between the level of inflation and the interest rates. What I think is if you compare the time periods, the pre-pandemic time period was pretty unique, not just in the fact that inflation was roughly below a 2%, but also the rates that was happening when rates were essentially zero. The new normal for me will be an equilibrium where inflation may be around 2 to 4%, but then interest rates should be higher than zero compared to what they were before. That's a more normal type of situation. The previous one was not an equilibrium in normal environment, in my view.

Michael Metcalfe: Brilliant. Well, we are bang on time. Thank you for that. And please join me in thanking Alberto.

Alberto Cavallo: Thank you.