As the economy begins to bounce back after a devastating year, economists are urging policymakers not to panic about the widely predicted, transitory rise in inflation and instead focus on ensuring an equitable recovery through President Biden’s proposed budget, which includes the job-creating American Jobs and Families Plans.
Josh Bivens, Economic Policy Institute Research Director says:
“We’ll see a jump in inflation in March and April simply from base-setting effects … I will start worrying about hypothetical inflation and overheating when this inequality is reversed. Until then, I really won’t believe it until I see it and I think policymakers really need to take that same stance.”
Paul Krugman, Nobel Prize-Winning Economist writes:
“Mainly, however, we’re just seeing the problems you’d expect when the economy tries to roar ahead from a standing start, which means that we’re calling on suppliers to ramp up production incredibly fast and expecting employers to quickly attract a large number of new workers. These problems are real, but they’ll mostly resolve themselves in a few months.”
Dean Baker, Senior Economist at the Center for Economic and Policy Research writes:
“Starting with the inflation that we have seen to date, it is important to remember that this follows the very low rate of inflation we saw in the pandemic. Much of this is just catch up.
While we know the data are quirky right now due to pandemic and the bounce back as the economy restarts, as a first approximation, inflation is going to be equal to the rate of wage growth minus the rate of productivity growth. Wage growth has been healthy through the recession, but wages have not risen rapidly enough to give much grounds for concern about inflation.”
Here’s what more experts have to say about inflation risks and the tools to deal with it:
Skanda Amarnath, Director of Research & Analysis at Employ America says:
“[The CPI report] showed that vaccinations are driving reopening and normalization in key sectors affected by the pandemic, including air travel and lodging. For those sectors facing bottlenecks, such as automobiles and technological hardware, prices are temporarily adjusting to reflect these constraints, but the ultimate resolution to these challenges will require more investment. Congress should move swiftly to support efforts that improve supply chain resilience and productive capacity.
The Federal Reserve has made it clear that it will look through these transitory dynamics that were already expected to put upward pressure on inflation readings. We are still very far from the Fed’s own estimates of maximum employment, which are a precondition for raising interest rates. Congress should be capitalizing on this moment by making critical investments that fully employ the capacities of all Americans now and ensure broad-based prosperity over the long run.”
Claudia Sahm, former Federal Reserve economist and Senior Fellow at the Jain Family Institute says:
“We must keep perspective, and we must have a recovery for all. The Fed is committed to keeping interest rates low until people are back to work and inflation averages 2%. Neither is expected anytime soon. Even with the recent pickup in consumer prices, we have a long way to go. The extra strength this year will help make up for extra weakness last year. Some months with over 3% inflation and the rest of the year above 2%, isn’t even enough. But it’ll get us a recovery faster than pulling back now. That’s what matters.”
Richard Clarida, Vice Chairman of the Federal Reserve says:
Lael Brainard, Member of the Federal Reserve Board of Governors says:
Kathy Bostjancic, Director of U.S. Macro Investors Services at Oxford Economics says:
“In the coming months, ongoing base effects, price increases stemming from the reopening of the economy and some pass-through of higher prices from supply chain bottlenecks should prompt higher inflation. However, we believe part of the acceleration in inflation will be transitory, and we share the Fed’s view that this isn’t the start of an upward inflationary spiral.”