The debate over whether inflation is transitory is over!
Larry Summers states five reasons why the recent increase in US inflation is no longer transitory:
- In October, prices for commodity goods outside of food and energy rose at more than a 12 percent annual rate. Inflation is now affecting many sectors of the economy;
- Inflation, in what the Fed considers key sectors such as used cars and household furnishings, has accelerated to more than a 30 percent and 10 percent annual inflation rate, respectively;
- Wages are rising rapidly due to high vacancy and quit rates. Summers adds that workers who switch jobs in sectors ranging from fast food to investment banking are getting double-digit pay increases;
- Inflation expectations are becoming unanchored as indicated by consumer sentiment indexes;
- There are global inflationary trends as Japan, China and Germany have recently all reported their highest inflation in more than a decade.
On inflation, it’s past time for team ‘transitory’ to stand down
By: Lawrence Summers – Harvard University
But the situation in Europe is slightly different
In October 2021, the United States recorded 24-month inflation at an annualized rate of 4.0 percent, around 2 percentage points higher than in the euro area, despite the fact that they both adopted highly expansionary fiscal and monetary policies in order to mitigate the economic damage of the pandemic. Jason Furman believes that international inflation drivers, such as high energy prices and supply chains bottlenecks, will abate in 2022 and hence alleviate inflationary pressures in Europe but not in the US. The reason being higher US wage job growth expectations which could pass through to higher prices as well as the fact that high rental and home prices have not yet shown up on inflation indexes.
Inflation has risen much more in the US than the euro area despite similar pandemic experiences
By: Jason Furman – Harvard University
One more reason why inflation in the US might not be transitory
The biggest culprit for rising prices that’s not being talked about is the increasing economic concentration of the American economy in the hands of a relative few giant big corporations with the power to raise prices.
If markets were competitive, companies would seek to keep their prices down in order to maintain customer loyalty and demand. When the prices of their supplies rose, they’d cut their profits before they raised prices to their customers, for fear that otherwise a competitor would grab those customers away.
But strange enough, this isn’t happening.
What’s Really Driving Inflation? Corporate Power
By: Robert Reich – University of California at Berkeley
