PAUL KRUGMAN: The inflation suspense goes on
Saturday, Dec. 11, 2021 -- If there was any information content in Friday's consumer price report release, it was that extreme scenarios in both directions became a bit less likely. There wasn't anything in the report suggesting that inflation is rapidly spiraling upward; nor was there anything lending comfort to those hoping to see inflation fade away in the next few months.
Posted — UpdatedIf there was any information content in Friday’s release, it was that extreme scenarios in both directions became a bit less likely. There wasn’t anything in the report suggesting that inflation is rapidly spiraling upward; nor was there anything lending comfort to those hoping to see inflation fade away in the next few months.
That said, the headline number is highly likely to come down over the next few months, if only because the big run-up of oil prices from their pandemic lows seems to have gone into reverse.
Shin points out, among other things, that shipping costs, while still very high, seem to have peaked.
But even if you try to adjust for special circumstances, underlying inflation appears to be running high by recent standards, maybe around 4% instead of the 2% that is the Federal Reserve’s target and has been the norm since the mid-1990s. This in turn reflects an economy in which spending is more or less back to the pre-pandemic trend but production is constrained both by bottlenecks and by the withdrawal of several million Americans from the labor force.
As an aside, 4% inflation isn’t hyperinflation; it isn’t even the double-digit inflation of the 1970s. In fact, whether they know it or not, Americans of a certain age can attest that it’s not so bad. It was, after all, the inflation rate that prevailed for much of the Reagan years — you know, after morning in America.
I, at least, don’t remember the late 1980s as hellish.
Still, the Fed would consider a sustained doubling of the inflation rate a blow to its credibility. So how long will elevated inflation last?
I still think the most likely scenario is a minor league version of the 1946-48 inflation spike, when pent-up demand after the end of wartime rationing caused an inflationary boom — inflation peaked at around 20% — but price stability quickly and more or less painlessly reemerged once the spending surge was over. I still don’t see any evidence that 1970s-type stagflation, in which everyone kept raising prices because they expected everyone else to keep raising prices, is emerging.
But Friday’s numbers neither reinforced nor challenged my beliefs. This report was shockingly unsurprising.
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