Most pundits (and propagandists) don’t know who to blame for ‘sticky’ inflation, so they blame those who haven’t caused it—such as the current administration or the Federal Reserve.
But the sudden rise in prices was caused by supply shortages and empty shelves from the COVID pandemic and lockdowns that followed. And this happened in all countries. Now add to this several wars that have disrupted more supply chains, including a developing cold war with China, and global warming which is causing massive droughts and floods that have disrupted food supplies and displaced whole populations.
Leading economists, such as Nobelist Paul Krugman, have said the Fed with its policy tools can’t bring down prices in most sectors, just slow the rise in prices, which it has done so that inflation is now rising much more slowly.
It would take another full-blown recession and the loss of millions of jobs to cause prices to return to pre-pandemic levels, as has happened in every other recession portrayed in the FRED graph from 2000 (gray bars are recessions).
It happened during the brief pandemic recession, for instance, when retail CPI inflation fell to zero percent in May 2020 and everyone out of work before rising to 9% in June 2022, and the earlier Great Recession when retail price inflation fell to a negative -2% in 2009, with the loss of more than 8 million jobs.
The worldwide pandemic lockdowns and supply chain stoppages were the most obvious cause of the supply shortages that brought on inflation rise to 9% in 2022, and steady decline of inflation since then as supply chains opened again to bring it down to the present seasonally adjusted 3.5% inflation rate.
It’s not easy for discontented consumers to blame the worst pandemic in 100 years for the sticky inflation figures because the COVID pandemic was such an unusual event that the trauma of one million US deaths has been quickly forgotten.
And it’s just as difficult to for consumers to imagine how the Middle East and Ukraine wars can disrupt oil and food supplies, as well as that due to global warming.
What is the best answer to this dilemma of higher prices and looming supply shortages? Faster economic growth, which the Biden administration with some bipartisan assist is doing with its New, New Deal Bidenomic policies that have employed millions.
The CHIPS Act is bringing back manufacturing jobs, the Inflation Reduction Act is countering global warming by funding alternative energy sources to fossil fuels, the Infrastructure and Jobs Act is spending $1 trillion to fix our infrastructure and projected to create more than 2 million jobs over the next decade.
But it requires consumers to think of its future benefits to know that we are in a better place, and can positively answer the question, are we better off today than four years ago?
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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