Ed Lotterman: If inflation is back, what now? | Ed Lotterman
Egg prices are cheaper now than before this pandemic. Plus, eggs, along with almost every other staple, have risen considerably less than overall average prices, or average incomes, over the past 60 years. Ditto for gasoline over the past 40 years, even with recent increases.
So much for the substance. What’s going on right now? The prices of many things are certainly going up. But many of the increases are against the declines that occurred when COVID-19 slowed the economy in early 2020. One can look at how the price index changes from month to month and then the convert to an annual rate with the formula also used for compound interest. . But this accentuates the small fluctuations. “Year-to-year” comparisons are therefore more common. But these can also be misleading in times of “exogenous shocks”, such as a pandemic, which temporarily raise or lower prices at either end of the comparison.
It is happening right now. But despite the flattery of many economists, including Nobel Laureates, as well as Federal Reserve Chairman Jerome Powell, Treasury Secretary Janet Yellen, and various economic advisers to Joe Biden, inflation at one point in a intermediate future is a concern.
Libertarian economist Milton Friedman, the parent of “monetarism”, insisted that inflation was “always and everywhere a monetary phenomenon”. In other words, too rapid increases in the money supply, as opposed to droughts, contractions in the beef cycle or conflicts in the Middle East, were the source of inflation. Most economists, even those who disagree with Friedman on other issues, agreed that this was fundamentally true. Personally, I still think it is.