Rising Inflation: Consumer prices accelerated at their fastest pace since August 2008, just before the Great Recession. 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 US Inflation
Last week, the Labor Department published the Consumer Price Index for May. This gauge tracks the price movement, up or down, of a basket of goods including food, energy, groceries, housing costs, and more. From a year earlier, this hypothetical Amazon cart of items jumped 5%, topping economist expectations of a 4.7% gain. Not only that, but consumer prices accelerated at their fastest pace since August 2008, just before the Great Recession. Some, including the Federal Reserve, believe the US is weathering a light hail storm: more than rain, but just a “transitory” stretch that will soon abate. Others think the US is heading towards a Category 5 inflation hurricane that will usher in 1970s-style price increases. Here’s what both sides are saying about the latest inflation figures:
On The Left
Left-leaning commentators and columnists are split. Some think inflation fears are premature, others think they’re worth noting but not worrying about, while some think America is heading towards a repeat of the 1970s.
Don’t Worry: In a piece for Project Syndicate, Joseph E. Stiglitz, a professor at Columbia University, says inflation “concerns are premature, considering the deep uncertainty we still face. We have never before experienced a pandemic-induced downturn featuring a disproportionately steep service-sector recession, unprecedented increases in inequality, and soaring savings rates.” Elaborating, Stiglitz believes “Much of the current inflationary pressure stems from short-term supply-side bottlenecks, which are inevitable when restarting an economy that has been temporarily shut down.” At the end of the day, Stiglitz says, “We should recognize the current ‘inflation debate’ for what it is: a red herring that is being raised by those who would stymie the Biden administration’s efforts to confront some of America’s most fundamental problems. Success will require more public spending. The US is fortunate finally to have economic leadership that won’t succumb to fear-mongering.”
Worth Noting But Not Worrying About: Writing for Bloomberg Opinion, Jonathan Bernstein points out that “Economists have been warning for some time that we should expect some real but transitory inflation this summer — and also that year-over-year numbers would be skewed by prices plunging last spring due to the pandemic.” More broadly, he believes “There’s a general media bias toward focusing on the potential downside of any economic news. A year ago, we were being warned of a new Depression; now it’s inflation. It’s always something.” At the same time, Bernstein does acknowledge that “The real inflation years of the 1970s” really were “scary,” so he’s not discounting concerns completely. To that end, he adds that “Republican complaints about inflation may be overhyped, or even wrong, but they’re generally not fictional.” Ultimately, he just thinks the media is placing so much focus on the figures because it allows outlets “to return to familiar, and safer, territory.”
Heading Towards the 1970s: Lastly, in an opinion piece from across the pond, Martin Wolf of the Financial Times says, “The Fed risks reacting too slowly if inflation keeps rising.” More specifically, “If the Fed has to raise rates sharply, it is likely to cause another sharp recession in the US. That would not only be bad for America, but also be bad for the world, including vulnerable developing countries.” Although “The rise in inflation we are now seeing might be both modest and temporary and not affect inflationary expectations… the Fed will persist with ultra-loose monetary policy until employment has already reached its (unknowable) “maximum.” “Given the lags between policy and outcomes, this guarantees overshooting. By the time the economy finally reaches the point when the Fed starts to tighten, it will be smoking hot (at ‘maximum employment’) and, inevitably, getting hotter.” Wolf says, “That is what happened in the 1970s,” and “A severe monetary tightening would create even more devastation than then.”
On The Right
Right-leaning outlets believe this is a problem born in the bureaucratic halls of Washington DC. They think President Biden’s administration, Congress, and the Federal Reserve are all to blame for what could be a disastrous weather pattern forming offshore.
Made in Washington: The Wall Street Journal Editorial Board calls this a “A Made-in-Washington Inflation Spike.” They think “Nobody should be surprised that prices are increasing everywhere from the grocery store to the car dealership. Demand is soaring as the pandemic recedes while supply constraints linger, especially in labor and transportation. As always, this is a price shock largely made by government. Congress has shovelled out trillions of dollars in transfer payments over the past year, and the Fed has rates at zero while the economy may be growing at a 10% annual rate.” Touching on labor supply, the editors note “Congress’s $300 unemployment bonus and other welfare payments for not working have contributed to an enormous worker shortage.” At the end of the day, “What’s undeniable is that Washington is conducting one of the most radical fiscal and monetary experiments in peacetime history. Even if the current inflation is transitory, Americans are paying more for it now.”
Four Main Problems: In a similar piece from the Washington Examiner Editorial Board, they believe this is a government-made mistake. The editors write that “The Federal Reserve, Congress, and President Joe Biden are all complicit in the intensifying growth of price inflation, and all three should ratchet back their reckless policies that are causing it.” “Four factors are feeding the price hikes,” they write. The first “one that may naturally work itself out involves supply-chain disruptions.” The second is the Federal Reserve. The editors believe the Central Bank must do a better job “keeping inflation in check,” and write that Biden can “help remind it of that mission.” Third is the “spendthrift fiscal policy pushed by Biden and Congress, especially congressional Democrats.” Lastly, “Biden is waging an unholy war against domestic production,” when he “killed the Keystone Pipeline, halted new production from federal lands and waters, and indefinitely negated the legal leases in the Alaskan National Wildlife Refuge.” They say, “One would think [Biden] would have learned the lesson… of price hikes, a cause entirely reminiscent of the Carter years during which Biden served in the Senate.”
Cat 5 Inflation Hurricane: Finally, in an opinion piece for the Washington Post, conservative columnist Henry Olsen says, “The Fed doesn’t want you to worry about inflation [but] you should.” Olsen writes, “Policymakers cannot go back in time and reverse the unnecessarily generous stimulus packages they initiated last year. Both, however, can stop adding fuel to the fire.” In regards to the executive branch, Biden can pull “back on his massive economic spending plans” like the “American Jobs Plan [which] alone would hike federal spending by an estimated $2 trillion over the next decade.” Meanwhile, “For the Fed, that means moving away from its stance that interest rates will remain near zero for the foreseeable future.” Olsen concludes by comparing “Economists [to] weather forecasters who tell us how strong the storm is and where it will go. Right now, our forecasters are drastically underestimating the possibility of an economic Category 5 tempest hitting US shores. The political and economic consequences of such a massive misreading could be catastrophic.”
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According to data from Axios’ latest Engagious/Schlesinger focus group, swing voters “say they feel anxious about the current state of the economy,” Sarah Mucha and Hans Nichols write. Moreover, “Inflation and recent increases in the national debt were among most of the voters’ chief concerns.” According to the study, “Eight of the 13 voters said they are apprehensive about inflation in their area, citing costs going up in a number of sectors, including groceries, gas, oil, and real estate. 10 of the 13 voters are worried about the national debt. They fear tax hikes and believe that Social Security is at stake.” In May, The Harris Poll and Yahoo Finance reported on similar sentiment. “Of the Americans who have taken notice of rising prices for consumer goods, 61% report having to spend more to keep up,” meaning “Consumers are feeling the squeeze.”
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