Rising Inflation: Recent reports are indicating that US inflation is becoming a very real issue. Here’s what both sides are saying. To have stories like this and more delivered directly to your inbox, be sure to sign up for our newsletter.
Top Story: Rising Inflation
In 1971, legendary Motown singer Marvin Gaye released the song “Inner City Blues” on his landmark album, What’s Going On. The urban soundscape, piano, and drum beat give way to Gaye’s melodic voice as he describes ghettos, the bleak economic outlook, and the emotional effects inner-city America was exerting on its residents. It made him want to “holler,” he said. Part of his pain, and that of others, stemmed from the rising cost of goods and services during the 1970s. With “Inflation [there’s] no chance, To increase [his] finance,” he crooned. One year later, in another song titled “You’re the Man,” Gaye continues. “The nation’s taxation, Is causin’ all, all this inflation,” he said. Echoing Gaye’s lament, the 1970s saw some of the highest rates of inflation in modern history along with an oil embargo that caused a US fuel shortage. The events that took place nearly 50 years ago are being compared to present day headlines. This includes gas shortages in the Southeastern United States thanks to the Colonial Pipeline cyberattack and runaway inflation numbers released this week.
First, on Wednesday the Labor Department said consumer prices rose 0.6% from March to April. They are now 4.2% higher from this time last year. “Some of that gain on the year was driven by a rise in gasoline prices, but core prices, which exclude food and energy items, rose 0.9% last month and were up 3% from a year earlier. That marked the biggest 12-month rise in core inflation since 1995,” Justin Lahart wrote for the Wall Street Journal.
Then, yesterday the Producer Price Index, which measures costs from the viewpoint of industries that make the products spiked 6.2% on an annual basis. According to CNBC, this is the largest increase since the Bureau of Labor Statistics started tracking the data in 2010.
Here’s what both sides are saying about inflation fears:
On The Left
Left-leaning commentators caution the American public not to panic. Just like the latest jobs report, the inflation spike is a temporary blip as the economy comes back online. They worry, however, that sustained inflation could become a self-fulfilling prophecy.
This Should Be Temporary: Writing for The New York Times’ Upshot column, Neil Irwin sets the stage with a little Econ-101 explanation of what’s happening broadly. “Demand for all sorts of goods and services has surged,” he writes, “but supplies are coming back slowly, with the economy acting like a creaky machine that was turned off for a year and has some rusty parts.” As a result, there are “shortages and price inflation across many parts of the economy.” Although this is frustrating, this “should be temporary,” he says. Noting the “price of used cars and trucks rose 10 percent in April,” Irwin says the increase for both old automobiles and inflation in general isn’t directly related to one singular issue. “Rental car companies reduced their fleets… fewer trade-ins [found] their way into the used-car market, and now new car sales are being held back by a shortage of microchips.” Fiscal and monetary measures are also factors, he acknowledges, but “For now, movements in key financial markets mostly align with the Fed’s view.” Although Irwin thinks the inflation increase is transitory, he worries “this could change expectations in ways that are self-reinforcing.” To that end, he quotes Kristin Forbes, an MIT economist and former US Treasury and Bank of England official, who says, “If everybody else is raising prices, it becomes a lot easier for you to do that, too.”
Don’t Panic: Meanwhile, the Washington Post Editorial Board offers a simple piece of advice to concerned Americans: “Don’t Panic.” Although April’s jobs report was disappointing and inflation data was “equally jarring,” there are reasons for both. First, “The price increases are relative to an anomalously low baseline: April 2020, when the US 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.” As a result, this should all even out in the fall, they state. “By September vaccination rates will be up, extra unemployment benefits will expire, and schools will reopen, likely rendering transitory the dislocations that are showing up in current data. The same is true for clearly temporary issues such as the closure of a key fuel pipeline and a semiconductor shortage hampering the auto industry.” At the end of the day, the writers state, “Robust growth coupled with tolerable inflation remains the likeliest scenario for 2021, and a month or two of bad data would not suggest otherwise.” With that said, “If the data changes, however, policymakers must be ready to change, too.”
This is Slightly Worrisome: Lastly, writing for Bloomberg Opinion, Mark Gongloff discusses the impact inflation may impose on the American psyche as well. Right now, it looks like a simple imbalance, he writes, “with supply unable to meet a surge in demand.” However, he highlights concerns from Mohamed El-Erian, who “warns that after too many months like this, people might start to think we’re going back to the days of Whip Inflation Now buttons and double-digit mortgage rates.” This is dangerous, he says. “Just as the gasoline hoarding we warned you not to do made gas shortages a self-fulfilling prophecy, inflation fears can fuel inflation. The Fed can’t let such psychology take root.”
On The Right
Right-leaning outlets and commentators are all over the map. Some focus on the Federal Reserve, while a few home in on how “inflation is taxation without legislation,” as Milton Friedman once said. Others think Americans shouldn’t be surprised by price increases and fuel shortages during the Biden presidency.
Powell Got What He Asked For: The Wall Street Journal Editorial Board focuses on Federal Reserve Chairman Jerome Powell, who “wanted more inflation, and now he’s got it.” While there are multiple factors at play, the inflation increase is “partly of Mr. Powell’s own making,” they write. “The Chairman has been a cheerleader for the fiscal blowout of the last year, especially the Joe Biden-Nancy Pelosi agenda. The Fed has monetized nearly all of the new federal debt issuance of the last year, and Democrats are counting on the Fed to keep it up in the years ahead. This makes it harder for the Fed to taper its bond purchases or raise interest rates.” The editors also touch on the idea of higher inflation becoming a self-fulfilling prophecy. “The danger is that expectations for higher inflation will rise and become embedded in business and consumer decisions,” they note. Ultimately, “Transitory then becomes longer and the Fed might have no choice but to end the party, perhaps more abruptly than it wants.”
Inflation is Taxation: Meanwhile, in The Hill, Kristin Tate, a libertarian writer and analyst for Young Americans for Liberty, argues that “Growing inflation is Biden’s hidden tax on working Americans.” Tate elaborates, saying “The sharpest tax President Biden is levying upon Americans is one that was never passed by Congress, promised from the White House, or voted on by citizens at the ballot box.” This, of course, is “The invisible tax of rising inflation [that] will do far more to harm working and middle-class Americans than Biden’s proposed tax hikes.” Zooming out, Tate notes that “Many Americans are unfamiliar with the double-digit inflation of the 1970s and 1980s, but Biden, who served in the Senate during this time, is not.” Now, “The president appears bound to repeat many of the most painful mistakes of that era — mistakes that led to increased economic dysfunction, a severe series of recessions, fuel shortages, and finally a conservative Republican to clean it all up.”
Where’s the Media Reaction? Lastly, in the New York Post, Eddie Scarry thinks the latest inflation surge is just par for the course with the Biden administration. “On every major front, Biden is flailing,” Scarry writes. “April just saw the highest rate of inflation in 13 years… The unemployment rate actually went up from March to April… Fuel is running out in several states… [and] Last month saw yet another increase in the number of migrants illegally crossing the wide open border. Meanwhile, the Middle East has exploded, Russia has closed portions of the Black Sea, and China is harassing fishing vessels. But let’s get back into the failed Iran nuclear deal,” Scarry says. What’s frustrating to Scarry is the coverage. “If the media could take a break from obsessing over the House Republicans choosing a new conference chair, they might have noticed that Joe Biden’s presidency is falling apart,” he writes. At the end of the day, Scarry believes “If Biden were a Republican, he’d be taking more heat.” Newt Gingrich also wrote about “Biden’s Hidden Tax Increase” in an opinion piece for Newsweek.
Flag This: Rising Inflation
According to a new Yahoo Finance-Harris poll, 53% of respondents say their household income is failing to keep up with inflation. Another survey from Rasmussen Reports found that 76% of American adults are at least “somewhat concerned” about inflation, including 45% who are “very concerned.”
Public sentiment is extremely important in regards to inflation. In fact, the very idea of the same becoming a self-fulfilling prophecy is something both sides mention above. To what extent the fear of inflation has truly embedded itself into the American psyche, however, is up for debate. That’s what Justin Lahart touches on in the first Wall Street Journal article about how during the 1970s, the issue of inflation was so pronounced that artists dedicated pop songs to the concept. We may not be there just yet, Lahart says, but “if Beyoncé or Taylor Swift start singing about inflation, watch out.”
Flag Poll: Rising Inflation
Do you think the current inflation uptick is “transitory” or do you think it’s a longer-term issue? Comment below to share your thoughts.