Inflation: Everywhere You Look

Through most of the past 40 years there have been periods where it appeared that 1970's-style inflation was back. Each time, thankfully, the tide subsided.

But how long could we keep pushing our luck? Was everything we thought we knew about government debt and the printing of paper money wrong? (Hint: no)

At the beginning of the COVID-19 emergency two years ago we were alarmed:

Now the Fed is buying corporate debt--even some risky pieces that pension funds won't touch--and the debt of state and local governments. It has crossed a line and can't go back. ("Why are you letting [State name] go bankrupt?")

Eventually the tidal wave of government debt and paper money will cause an inflation that will dwarf that of the 1970's. Thankfully, with a life expectancy of perhaps 20 years, I won't have to suffer through much of it.

I was thinking about a ribeye roast for Super Bowl
weekend but I couldn't get a 2nd mortgage in time.

Well, we were wrong, not about inflation but that it's years off in the future. It's here now, and it's everywhere. [bold added]

inflation is increasingly widespread across the U.S. economy. Economist Mickey Levy of Berenberg has scrutinized data for more than 200 individual goods and services for which the government tracks prices. An increasing number of individual items are subject to higher rates of inflation, he warned on these [WSJ] pages in December.

His update based on last week’s data suggests the problem is growing worse. Some 73% of the items saw annual price rises of 3% or higher in January, and some 55% of items saw inflation of 5% or higher. Keep in mind the Federal Reserve’s inflation target is 2%.

This is the pattern that typified the inflation of the 1970s. The oil crisis was the “supply-chain disruption” of its day—the go-to, single-item political excuse for inflation. The OPEC cartel was blamed. But the oil-price surge was a response to monetary policy blunders that let inflation loose in the late 1960s and then fed it across the 1970s.,,

The lesson of the 1970s is that once inflation appears, it needs to be corralled with urgency, or it will become embedded and increasingly hard to rein in. We are long past the point where the Fed should have been tightening policy, and the task will be more painful now because of the delay. The evidence of the inflation mistake is everywhere you look.

In the late '70's and early '80's inflation was licked through a change in the political party that ran government, a change in Federal Reserve policy, and a lot of economic pain. Given the quality of our political leadership, a repeat of the '70's and '80's is the optimistic outcome.