Inflation is Upon Us

…or is it?

The editors at The Wall Street Journal worry that the current rise in inflation might not be as “transitory” as Fed Chairman Jerome Powell thinks it will be. It’s a concern worth taking seriously. As the editors cite Milton Friedman as saying,

inflation is always and everywhere a monetary phenomenon

and the Feds—and the Fed—have been pumping lots of tons of cash into our economy.

Couple of things, though, on this inflation…spike.

The current inflation is impacted by all the “stimulus” checks coming from the Federal government, and money is the source of demand, not how much folks want things. It’s money that pays the prices, not folks.

The current inflation also is impacted by the return to more normal pre-Wuhan Virus situation demand levels being faster than producers can ramp back up to meet that recovering demand.

That slower production ramp-up is itself impacted by producers’ inability to get employees back to work. So much of the value of those “stimulus” checks makes not working more valuable than working, and recipients, far from being lazy, are making the economically rational decision to not return to work yet.

Underlying all of this is that 2020 was an aberrational year. The economic drop was caused by politics, not a confluence of economic forces, and the present interference with recovery also is politically caused; a slowing unwinding of that confluence isn’t a factor. Inflation comparisons with 2020 are themselves distorted.

A better inflation measure would be against 2019.

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