“Inflation in April accelerated at its fastest pace in more than 12 years… The Consumer Price Index, which measures a basket of goods as well as energy and housing costs, rose 4.2% from a year earlier… Excluding volatile food and energy prices, the core CPI increased 3% from the same period in 2020.” CNBC
The right worries that excessive government spending is driving inflation, which will be harder to control given current levels of the national debt.
“The federal government and its continued stimulus spending and bailout programs have induced a ‘sugar high’ of consumption. Even under normal circumstances, that would put upward pressure on prices as demand rises. Doing so while experiencing supply bottlenecks amplifies that effect. And the mass printing of money — as Congress essentially has asked the Federal Reserve to do with these unfunded multi-trillion-dollar packages — has its own inflationary impacts…
“This is why some economists warned about the passage of a third massive relief/stimulus bill in March without seeing how the second package played out. The late December bill’s spending hadn’t yet fully rolled out before Congress and Joe Biden demanded an [additional] two trillion off-the-books dollars. The risk of inflation eating at the recovery was obvious, but the politics of the giveaway was just too attractive in the short term to resist.”
Ed Morrissey, Hot Air
“These numbers [from the BLS] come at a time when the U.S. debt level has eclipsed 100 percent of the gross domestic product for the first time since World War II. The government authorized about $4.1 trillion in spending in 2020 to fight the coronavirus and the economic effects of lockdowns. Then Biden followed up with an additional $1.9 trillion upon taking office. And now, he’s pushing for another $4 trillion in spending…
“If passed, the government will have enacted $10 trillion in new spending in a little over a year. This is completely reckless. The federal government does not have money to spend. The economy does not need more government spending, it just needs officials to step out of the way and allow businesses to completely reopen now that the vaccine is widely available.”
Philip Klein, National Review
“Moreover, stopping inflation will be harder this time, in the shadow of debt. Federal debt held by the public hovered around 25 percent of GDP throughout the 1970s. It is four times that large, 100 percent of GDP today, and growing. The CBO forecasts unrelenting deficits, and that’s before accounting for the Biden administration’s ambitious spending agenda. If the Federal Reserve were to raise interest rates, that would explode the deficit even more. Five percent interest rates mean an additional 5 percent of GDP or $1 trillion deficit. The Fed will be under enormous pressure not to raise rates…
“Persistent inflation grows suddenly, unexpectedly and intractably, just as it did in the 1970s. Some worry that a burst of inflation will lead the Fed to raise rates and thereby stymie the recovery. It is a far greater worry that the Fed will not react promptly, thereby letting inflation and inflation expectations spiral upwards.”
John H. Cochrane and Kevin A. Hassett, National Review
“For more than a year the Fed has been pursuing an expansionary policy for the ages. It has been keeping rates near zero and expanding its balance sheet to record levels with bond purchases in an economy that has been growing fast for more than nine months…
“The money supply has been growing rapidly, and cash is chasing higher returns across the economy amid near-zero interest rates. Junk bond issuance this year is at a record pace. Asset prices have boomed. The danger is that expectations for higher inflation will rise and become embedded in business and consumer decisions… the Fed might have no choice but to end the party, perhaps more abruptly than it wants.”
Editorial Board, Wall Street Journal
The left urges caution, arguing that some level of inflation is necessary and there is little indication that it will spiral out of control.
The left urges caution, arguing that some level of inflation is necessary and there is little indication that it will spiral out of control.
“Looking back over the last 12 months, the core inflation rate (as measured by the consumer price index) was 2.3%, which is in keeping with the Federal Reserve’s 2% to 2.5% target. The question is not whether there will be some inflation this year, but whether it will represent ‘overheating’ of the economy as a whole. Most likely, it will not…
“One thing that should be clear, however, is that an uptick of inflation this year is nothing to be upset about. After all, wage and price increases are an essential part of rebalancing the economy…
“While some commentators worry that we may be returning to the 1970s, this is highly unlikely. That decade’s stagflation conditions followed from a perfect storm of shocks, and were exacerbated by the Fed’s conflicted and confused response under Chairman Arthur Burns. Today’s Fed leadership is very different, and there is no perfect storm of repeated shocks to match the effects of the slowdown of productivity growth in the 1970s and other events of that era.”
J. Bradford DeLong, Los Angeles Times
“A reasonable case can be made — eminent economists such as Lawrence H. Summers have made it — that President Biden’s $1.9 trillion American Rescue Plan was too large and too late, putting an already recovering economy at risk of overheating. But the new inflation numbers don’t yet prove it. First, the price increases they reflect are relative to an anomalously low baseline: April 2020, when the U.S. economy was essentially paralyzed. Second, the headline consumer price index includes volatile sectors such as food and energy. Without those, the rise in ‘core’ inflation was tamer…
“The pandemic jolted the U.S. and global economies in ways that even experts do not fully understand. Damage and disruption on the supply side of the economy are central to the problem, but most policy instruments, both fiscal and monetary, work by boosting demand… Robust growth coupled with tolerable inflation remains the likeliest scenario for 2021, and a month or two of bad data would not suggest otherwise. If the data changes, however, policymakers must be ready to change, too.”
Editorial Board, Washington Post
“For now, the current inflation story is largely a supply-side phenomenon. As one example, the global chip shortage is leading to fewer new vehicles hitting the market. That, in turn, has caused a scramble for used cars and trucks, whose prices rose about 10% in April from the prior month, and more than 20% since February 2020. That kind of growth almost certainly won’t last forever; it’s just a matter of getting production back on track.”
Brian Chappatta, Bloomberg
Dated but relevant: “Inflation in the United States has largely not been a problem in recent decades for many reasons that still hold: Automation lowers the cost of labor; higher depreciation as technology becomes obsolete more quickly has led to more business investments in R&D, software and patents, which may cost less than investments in buildings and equipment; the rise of e-commerce platforms has generated more competition for a broader set of goods that keeps prices low; and firms relying increasingly on contract employees have dampened wages…
“While consumers can expect pockets of higher inflation in the next year or so, several factors make it less likely that it will spiral out of control. Indeed, should prices head skyward, the Fed does stand ready with the proper tools to bring them back down to Earth and avoid a 1970s revival.”
Dana Peterson, CNN