October 18, 2021


“Another jump in consumer prices in September sent inflation up 5.4% from where it was a year ago… The annual increase in the consumer price index matched readings in June and July as the highest in 13 years, the Labor Department said [last] Wednesday. Excluding the volatile food and energy categories, core inflation rose 0.2% in September and 4% compared with a year ago. Core prices hit a three-decade high of 4.5% in June… For elderly Americans, however, the increase has resulted in the biggest increase in benefits in 39 years. Monthly Social Security checks will rise 5.9% next year.” AP News

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From the Left

The left cautions against reacting prematurely and argues that Biden’s agenda will alleviate the supply-side bottlenecks adding to inflation.

“Why is it so hard to make a call on inflation right now? Because the current economy, still very much shaped by the pandemic, is, to use the technical term, weird. In particular, the standard measures economists use to distinguish between temporary price blips and underlying inflation are telling different stories…

“The traditional measure of underlying inflation is the rate of change in the ‘core’ price index, which excludes volatile food and energy prices. But there are alternative measures, like the median (as opposed to average) change in prices, which excludes drastic price moves in any sector. During the last economic crisis it didn’t matter much which measure you used. All of them had the same message: Don’t panic… These days, however, the different measures are telling very different stories…

“Should the Fed raise interest rates soon, to head off inflation, or wait and see whether recent inflation proves transitory?… Wait-and-see looks like the prudent thing to do. I think current inflation is transitory, but I’m not sure. I am, however, confident that tightening monetary policy based on what we know now would be a big mistake, because the risks of moving too soon and moving too late are highly asymmetric.”
Paul Krugman, New York Times

“This concentration of inflation in a few sectors is the result of chronic underinvestment in economic capacity over the last several decades… There are so many ships and cargo containers coming through the port that it simply can't move them fast enough. Ships are being forced to wait for days or weeks offshore, while the port has no choice but to store thousands of containers in huge piles…

“A globalized, ‘just in time’ production model is a low-cost operation when times are good, but it produces exceptionally costly delays and tangles when times are bad… [Biden's agenda] would help push through some of these bottlenecks. It would incentivize new investments in housing and semiconductors, which are needed for car production. The plan's infrastructure elements will help ease the supply bottlenecks in shipping, and its general spending will keep incomes higher, thus incentivizing businesses to keep investing in new capacity.”
Ryan Cooper, The Week

“In a context where supply-side bottlenecks are major contributors to the price problem, raising rates could actually make things worse. We need more car production and home construction, not less, if we want to reduce prices in the vehicle and housing markets. Yet if you make it more expensive for carmakers and construction firms to borrow, you are going to reduce supply in those sectors. At the same time, given Americans’ volume of pandemic savings, it’s not clear how much raising interest rates would even cool demand — unless you raised them high enough to trigger a recession…

“The best option for policymakers is to try to increase supply in whatever marginal ways they can (such as the recent effort to keep the port of L.A. open 24 hours), while otherwise letting markets work. As prices go up, demand should self-correct to a degree. Persistently higher prices would be a real burden to Americans. But so long as there is no accelerating, economy-wide increase in prices – and thus, no threat of a self-reinforcing cycle of inflation, powered by higher inflation expectations — elevated prices will be preferable to interest rate hikes large enough to force them down.”
Benjamin Hart and Eric Levitz, New York Magazine

From the Right

The right blames Biden for increasing inflation through excessive government spending and worries that the inflation rate will remain high.

The right blames Biden for increasing inflation through excessive government spending and worries that the inflation rate will remain high.

“Biden has waved away inflation concerns on numerous ­occasions, once arguing that ‘no serious economist’ was suggesting that ‘unchecked inflation’ was on the way. This was four months ago. We are now in our sixth month of historic spikes. I’m not sure if Biden considers Larry Summers, former Treasury secretary for Bill Clinton and Barack Obama’s National Economic Council director, a ­serious economist. But Summers seems to believe runaway inflation and bottleneck supply-chain problems pose a serious risk to the economy…

“As a political matter, inflation isn’t some abstract philosophical debate, but something tangible and historically fraught… For retirees, inflation means ­instant wealth destruction. For everyone else, it means immediate hikes in the cost of living. Consumer prices, led by energy and food prices, have increased 5.4 percent overall since last year, which is the largest increase since 1991.”
David Harsanyi, New York Post

Food, fuel and housing are costing households at the $70,000 median annual income an extra $175 a month… With most Americans vaccinated, we should be well on our way back to the pre-pandemic booming economy, which saw just 3.5 percent unemployment in February 2020. Instead, nearly 40 percent of US households report serious financial difficulties, such as trouble paying utility bills, in recent months; it’s 60 percent among households earning under 50 grand a year…

“Throwing trillions into an already-recovering economy was bound to lead to inflation, as was boosting unemployment benefits $300 a week until September. The resulting rise in demand and worker shortage have also contributed to the supply-chain mess, with a record number of job openings in the trucking industry…

“A backlog of nearly 100 cargo ships has sat for a month off Southern California, unable to unload goods at ports that handle more than half of American imports. Biden only moved to open the Los Angeles port 24/7 this week — and actually thanked his Supply Chain Disruptions Task Force for its ‘leadership.’ What has it been doing since he established it in June? Not much, clearly.”
Editorial Board, New York Post

“Experts who attribute this to temporary supply shocks are missing the forest for the trees… the problem is almost certainly the massive boost to demand that pandemic bailout measures created. Governments worldwide overreacted to the pandemic and showered cash on their businesses and citizens. This caused household savings rates to soar as families had more money than they could possibly spend… U.S. household savings went from a two-decade average of between 5 percent and 7 percent to higher than 30 percent in 2020…

“They are now spending those savings on whatever is available, and still have money left over to burn. This underlies the record-high retail sales figures in the United States, which is now running at more than $620 billion a year. Before the pandemic, U.S. retail sales increased by roughly $20 billion to $25 billion a year, reaching $526 billion in February 2020. The nearly $100 billion increase in 18 months is quadruple the long-established rate of growth…

“[Yet] The Fed still believes the economy needs priming to recover from the pandemic-induced recession… [This is] akin to firefighters choosing to throw more dry brush on a raging inferno while saying they intend to control the blaze.”
Henry Olsen, Washington Post

A libertarian's take

“The price increases are widespread, which suggests they are embedded. No matter how analysts choose to slice and dice the data, the answer is the same: The U.S. inflation rate calls for taking offsetting actions… Avoiding the hard truth or waiting before countering inflationary forces carries a cost. In this case, delays could mean harsher action later when, for example, the Fed hits the money brakes harder to cool the economy. In such a case we might see interest rates head to the ceiling, construction activity and high-tech investment plummet, and the economy roll into a recession.”
Bruce Yandle, Reason

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