facebook linkedin twitter

Experts Unsure Whether Stimulus Causing Inflation

July 2, 2021 by Kate Michael
The Federal Reserve. (Photo by Dan McCue)

WASHINGTON — If it seems like prices are going up for things like gas, groceries, vehicles, and houses, they are. The Consumer Price Index has risen by an average of 0.7% per month over the last three months, is now 5% higher than a year ago, and is already up 2.7% in just the first five months of 2021. 

But while some think rising prices — or inflation — are transitory and simply the result of the economy correcting itself post-pandemic, other analysts are more worried about persistent inflation, the likes of which the United States hasn’t seen since the 1970s. 

“Most of us admit that this initial inflation surge is transitory… we’re not looking at a hyper-inflation story just yet,” said Tim Duy of SGH Macro Advisors and the University of Oregon at a discussion convened by the Committee for a Responsible Federal Budget. “But we should be humble about [inflation] in the near future.”

“I’m not concerned that a 70’s style inflation is around the corner… but we could have inflation in a range going forward that is a little bit complicated for the Fed.”

According to Duy, many of the longer-term inflation expectation indices showed measures that have been rising since the pandemic began, so the United States may have been on an inflationary projection anyway. But other analysts believe that the government response to COVID exacerbated inflationary pressures. 

“Six trillion dollars in support for the economy — covering everything — is an awful lot of money to dump in the economy… and there are consequences to that. One is inflation,” Marc Goldwein of the Committee for a Responsible Federal Budget said. 

“We’re headed to an economy performing at above-trend, pre-pandemic levels, thanks, in part, to fiscal relief. But did we go too far?”

Jason Furman of Harvard University agreed that the U.S. government’s substantial fiscal response was the reason U.S. GDP is expected to be above that forecasted prior to the pandemic, “the only G7 country where that is true,” but he said it is also only the U.S. that is seeing “an incredibly rapid pace of inflation.” 

Forecasters have been dismissive that the probability of inflation could rise far above 3%. The Federal Reserve has amended previous forecasts, now projecting inflation will climb to about 3.4%. The central bank has indicated that it prefers an average 2% inflation but has not defined the window between which it would take this average.

“I’d be perfectly happy with 3% as long as the Fed can lock it in,” said Furman, adding that demand is likely to continue to exceed supply for some time and that the government’s response has led to individual factors that make the financial future that much more unpredictable, including “excess personal savings, some fiscal stimulus still coming, [and] financial conditions [that] are loose.”

“The ordinary American may not care about inflation,” Duy said, reminding that students have no experience with the high inflation environments the U.S. has experienced in the past,”and many just don’t remember its effects. But the ordinary American will care to what extent inflation eats into wage gains, for example.

“Every signal that we have in the economy… is pointing to a softening in inflation between 2021 and 2022, and if that’s the case, we can feel confident that economic mechanisms are working,” said Wendy Edelberg of the Brookings Institution’s Hamilton Project. “If not, that’s a far more complicated world and a far more worrying world.”

But just as the pandemic threw economies up in the air, the fiscal future is unpredictable. The only consensus is that there is no way yet to know whether inflation is merely transitory or persistent.

“At the moment, the inflation expectation scenario isn’t unduly terrifying,” Ian Shepherdson of Pantheon Microeconomics said, but added, “anyone banging the table claiming that they know what’s going to happen is kidding themselves.” 

Economy

US Jobless Claims Fall to New Pandemic Low of 290,000

WASHINGTON (AP) — The number of Americans applying for unemployment benefits fell last week to a new low point since... Read More

WASHINGTON (AP) — The number of Americans applying for unemployment benefits fell last week to a new low point since the pandemic erupted, evidence that layoffs are declining as companies hold onto workers. Unemployment claims dropped 6,000 to 290,000 last week, the third straight drop, the... Read More

October 20, 2021
by Tom Ramstack
Congress Tries to Intervene In Supply Chain Disruptions

WASHINGTON -- While economists warned about disruptions to the U.S. supply chain, Chuck Fowke told a congressional panel Wednesday about... Read More

WASHINGTON -- While economists warned about disruptions to the U.S. supply chain, Chuck Fowke told a congressional panel Wednesday about countertops. “If you can’t get the cabinets, you can’t put the countertops on,” Fowke said as he testified on behalf of the National Association of Home... Read More

Commerce Head Out to Save US Jobs, 1 Computer Chip at a Time

WASHINGTON (AP) — Gina Raimondo only wears watches made by Bulova — a company that laid off her scientist father,... Read More

WASHINGTON (AP) — Gina Raimondo only wears watches made by Bulova — a company that laid off her scientist father, closed its Rhode Island factory and moved production to China in 1983. The watches give Raimondo, the U.S. commerce secretary, a sense of mission as President... Read More

October 14, 2021
by Dan McCue
White House Action on Supply Chain Bottleneck Seen As First Step To Ending Crisis

WASHINGTON -- They’ve almost become as ubiquitous as scenes of weathermen and women leaning into the fierce winds of a... Read More

WASHINGTON -- They’ve almost become as ubiquitous as scenes of weathermen and women leaning into the fierce winds of a tropical storm during hurricane season. We refer, of course, to the daily television news footage of a reporter bobbing up and down in a decidedly modest... Read More

US Wholesale Prices Rose Record 8.6% Over 12 Months

WASHINGTON (AP) — Inflation at the wholesale level rose 8.6% in September compared to a year ago, the largest advance... Read More

WASHINGTON (AP) — Inflation at the wholesale level rose 8.6% in September compared to a year ago, the largest advance since the 12-month change was first calculated in 2010. The Labor Department reported Thursday that the monthly increase in its producer price index, which measures inflationary... Read More

October 13, 2021
by Dan McCue
White House Steps Up Fight Against Supply Chain Woes

WASHINGTON --  In an ideal economy, the nation’s supply chains work something like this: raw materials, finished products and ready-to-assemble... Read More

WASHINGTON --  In an ideal economy, the nation’s supply chains work something like this: raw materials, finished products and ready-to-assemble merchandise like cars and trucks flow into the nation’s ports. The largest of these ports, those blessed to sit on deep-water harbors, typically have rail tracks... Read More

News From The Well
scroll top