The line between anomalous and a new normal is always fuzzy, but it is striking that the same people who balked at the idea that inflation might be a thing of the past when there was no evidence of it between 20 are willing to sound the alarm of inflation after just a few months of high readings in 2021. A quick Google search reveals dozens of recent articles and media segments highlights rising prices, consumer unease and a plethora of economists in a rising crescendo that in preventing COVID-19 from becoming an economic catastrophe, we have unleashed the inflation threat that had until 2020 been considered largely vanquished. Former Treasury Secretary Larry Summers has been making the rounds accusing the administration of inflation complacency, warning that that the governments and banks worldwide need to start taking the inflation threat seriously. The spike in inflation has triggered a wave of warnings that the combined effects of excess demand, aggressive government spending and the COVID easy money policies of central banks have inadvertently reawakened the inflation monster. Treasure Secretary Janet Yellen said recently, “I expect that next year, many of the supply bottlenecks that we’re experiencing now in opening up our economy will recede.” But in recent weeks, that conviction has come under intense fire. The result is that any hint of inflation triggers the equivalent of PTSD in the ranks of central banks, economists, policymakers and millions of middle-class wage earners.įor months the response of the Biden Administration and of the Federal Reserve has been that this bout of inflation is a temporary phenomenon, a sign of demand roaring back. Today’s sense-memory of inflation is connected to the rise of fascism and World War II in the 1930s and 1940s, and then the roiling disorders of the world in the 1970s. But as we weigh the answers, a few things should guide us: not much has changed structurally in the global economic system in the past few months our economic numbers are based (as they always are) on changes over the last twelve months, and last year was epically problematic with much of the world in lockdown and finally, the scars of the ravages of inflation in the 20th-century has never fully healed. No one knows, of course, what the future truly holds, even as that doesn’t stop many from proclaiming with certainty.
The $64,000 question (or perhaps now the $128,000 question) is whether this is a dramatic and dangerous new normal or simply a hiccup as the world emerges from 18 months of the COVID-19 economy. With government spending in the trillions and economic activity surging as the pandemic wanes, much of the world is beset by high demand for goods that have created massive supply-chain bottlenecks, with not enough ships and capacity at ports leading to long delays and higher prices for almost everything. Recent numbers came in at 6.2%, the highest since 1990. For the first time in decades, we are in the midst of a bona-fide inflation scare.