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Tag: inflation

Eat It, Fox News: New Data Shows Inflation Eased In December

Washington (AFP) - Wholesale prices for US goods and services surged to a record last year amid the supply snarls that have battered the global economy, but data released Thursday showed that inflation pressures eased in December.

The producer price index (PPI) jumped 9.7 percent in 2021, the largest calendar-year increase since the data was first calculated in 2010, the Labor Department reported.

But PPI in the final month of the year gained just 0.2 percent compared to November, its slowest increase in over a year, and half the increase economists were expecting, due to a 0.4 percent decrease in the cost of goods.

The data follows the government report on consumer prices released Wednesday showing the biggest annual increase in nearly four decades, fueled by jumps in prices for cars, housing and food.

However, at the producer level, energy prices dropped 3.3 percent and food prices also declined, the data showed.

"Producer prices ended the year on an encouraging note, rising less than expectations as both the headline and core PPI moderated in December," said Mahir Rasheed of Oxford Economics.

The Covid-19 pandemic has created shortages of critical goods like computer chips for cars while transportation snags have further fanned the inflation flames as new strains of the virus cause additional business disruptions.

"Persistent supply disruptions will pin producer prices near record levels in the near term, especially given a rapidly spreading Omicron variant that will fan inflation pressures," Rasheed said.

Federal Reserve officials have made clear that fighting the wave of price increases will be a priority, and many economists now expect the central bank to raise the benchmark interest rate as soon as March.

The price surge has battered President Joe Biden's reputation even as the economy recovers from the damage inflicted by the pandemic, and his White House welcomed the sign the pressures might be abating.

"Monthly inflation results are always volatile, and this report was driven in large part by a reduction in highly volatile energy and food prices, but also reflects potential improvement in prices for supply-chain related goods and services," said Cecilia Rouse, head of the White House Council of Economic Advisors.

But she said the data underscore the need to continue to work to resolve the supply chain issues.

"Even as the economy has had a historic recovery, we continue to face challenges with prices driven by supply chain disruptions around the world."

The Five Biggest Events To Go Down In 2021

If you turn on the news or visit your social media apps, the world looks a lot like 2020 still. Of course, the one massively sobering difference is Americans are no longer forced to live under a washed-up game show host turned cosplay fascist, treating democracy and the norms of governance like they were occurring in his tawdry casinos. It could be argued that we've been living in a simulation since the onset of the pandemic in 2020 and have yet to find the exit. In any case, 2021 brought some glimmers of hope amid bouts of destructive political partisanship and getting our fractured nation to come to grips with reality amid a never-ending pandemic.

1. January 6th Attack On the Capitol

Capitol Jan 6 | Blink O'fanaye | Flickr

Image via Flickr|Blink O' Fanaye

Saying this year began with chaos would be the understatement of the century. The biggest and most shocking event of our democracy happened less than a week into 2021. Hordes of irate MAGA cultists invaded the Capitol like the barbarians invaded Rome, right as Congress was at work certifying President Biden's unequivocally legitimate election victory in the Electoral College over now-former President Trump, forcing their evacuation. We watched images pour across our screens of defenseless Capitol Police officers trying to thwart this angry mob of Trumpist fanatics, with many of them facing injuries and one officer, Brian Sicknick, suffering a deadly stroke as a result of the chaos. You've got to hand it to the "bLuE LiVeS MaTtEr" crowd for striking an officer with a pole bearing a U.S. flag and dragging an officer down the stairs under the Capitol Dome. The unfolding drama and horror have resulted in lawmakers forming a select committee to investigate what led to the violence of that day, as well as what direct role former President Trump played. Not to mention the hundreds of arrests and prosecutions of the mob participants.

2. A Never-ending Pandemic

Fauci remains optimistic about near-end to pandemic in 2021 - Medill  Reports Chicago

Image via Northwestern University

While most of us thought the world would be welcoming the new year with celebratory events and massive crowds of jovial party goers, the highly contagious Omicron variant of Covid-19 all but killed those plans. Americans thought they'd be back to the daily grind of their lives and, most importantly, be able to be with their friends and families without having to don a biohazard suit. The fallout from Omicron complicates the promise of a president who vowed to get the pandemic under control. While President Biden acted valiantly and did much to mitigate the pandemic, plague fatigue and a large chunk of the citizenry stupidly devoted to refusing the vaccine and embracing baseless conspiracies will challenge the president and Democrats in the upcoming midterms.

3. The US Exit From Afghanistan

Soldiers assigned to the Combined Joint Task Force 76 are shown exiting a CH-47 Chinook

Image via US National Archives

An amazing thing happened over the summer: Millions of average Americans suddenly went from being infectious disease experts to foreign policy experts. Indeed, President Biden's smart decision to finally end our involvement in a 20-year war was met with a flurry of unfounded criticism from would-be experts, especially given the rather chaotic execution of the departure. The majority of Americans wanted out of Afghanistan and former President Trump had laid plans to exit the war-torn country even earlier than Biden did. However, the planning and timing of the exit didn't exactly proceed with flying colors.

The Biden administration had thought the U.S.-backed Afghan government would hold on to power for at least six months. However, the Taliban had taken over the country before the final U.S. troops were out of the airport. It represented a major blow for Biden, who had promised weeks earlier that withdrawing from Afghanistan would not lead to a Saigon-like fall. Instead, Biden was forced to watch videos of desperate people fleeing to the airport, with a few plunging to their deaths as they clung to U.S. planes.

4. The Vaccination Fight

File:Anti Vax or mask IMG 3966 (51380804053).jpg - Wikimedia Commons

Image via Wikimedia Commons

Nothing has shown how unbelievably selfish and despicably partisan our nation has become than the fight to get our population vaccinated. In what can best be described as one part Idiocracy and one part Simpsons episode, we've watched far-right Republicans and deranged conspiracy theorists spout utter nonsense about the vaccine, the CDC, Dr Anthony Fauci, and members of the medical community just trying to do their damn jobs. A year after the miraculous development of effective COVID-19 vaccines, only 61 percent of the nation’s population is vaccinated, which clearly represents the danger of misinformation (Horse dewormer, anyone?) that infects social media like Covid itself.

Not surprisingly, the majority of the anti-vaxx noise is coming from far-right and GOP circles, thus proving the Republican party has become a death cult. Things have gotten so utterly insane that many of Trump's loudest cult members are raging against their own cult leader for his embrace of the vaccine, booing him at events and going after him on social media. At this point, it almost seems fitting to build a wall around the anti-vax crowd and make Fox News pay for it. But seriously, the CDC points out that vaccinated people are 14 times more likely to die from COVID-19 complications. Biden has done all he could to convince these selfishly stupid (and they are stupid) Americans to get vaccinated, but it's up to Darwin now.

5. Inflation

Forecasts Archives - PIDE Blog

Image via Pakistan Institute for the Development of Economics

Shutting down the world economy for nearly a year has had devastating impacts on the price of goods, especially as everything opened up all at once. Prices in 2021 rose at the fastest rate in 40 years, creating enormous problems for President Biden and his agenda. Government stimulus checks and other measures were desperately needed during a raging pandemic, but the rapid printing of money has spaned hyperinflation. It was a catch 22, but one that could not be avoided.

A shortage of workers contributed to wage gains, but more price hikes at restaurants and hotels. Notwithstanding these setbacks to the economy, the stats show the recovery is going well and Biden's economy has seen huge gains.

Obviously so much more happened in 2021, but those events got the most national attention and news time. Let's hope 2022 is far less chaotic.

Michael Hayne is a comedian, writer, voice artist, podcaster, and impressionist. Follow his work on Facebook and TikTok


How Biden’s ‘Christmas Nightmare’ Turned Into A Gift-Giving Miracle

Reprinted with permission from PressRun

So much for the empty shelves and delayed packages this shopping season.

After months of the media insisting consumers were terrified about the rising inflation rate, and that stores would be barren this season thanks to supply chain woes, shoppers snatched up everything in sight, sending holiday sales soaring to a 17-year high. Clothing sales jumped 47 percent compared to 2019 (pre-Covid), jewelry 32 percent, electronics 16 perc.

That runaway spending meant consumers had no problem finding products, despite months of dire media warnings and claims that it all meant terrible news for the White House.

Alternately hyped as a “problem,’ a “Christmas crisis,” and even a looming “nightmare” for President Joe Biden, the holiday season supply chain issue took on Herculean importance for the political press corps, which until this year had never cared about the global trade issue.

At an October White House press briefing, CBS’s Ed O’Keefe actually demanded to know if the White House would guarantee that every holiday package would arrive on time this year.

Itching to maintain the Dems in Disarray narrative, egged on by Fox News, and stretching common sense to the breaking point, the press claimed the president faced a debacle over something he does not control. When none of the doomsday predictions came to pass though, most of the press moved on, instantly losing interest in supply chain chatter.

The issue highlights what happens when the press joins forces with the GOP to hype a made-up Biden “crisis,” and how news outlets look away when the allegation proves to be a total bust.

“The holidays are just around the corner and shoppers are seeing something that they don't like, ‘Out Of Stock.’ You see it everywhere,” CNN announced on November 10. “Better start your shopping now. The shortages that could ruin your holiday plans,” the network warned on November 16.

Between November 1 and November 30, CNN mentioned “supply chain” 330 times, according to TVeyes.com. For the month of December, when supply chain news improved, that number fell to 130 mentions, a decrease of nearly 70 percent. (Fox News referenced “supply chain” a staggering 700 times in November; 400 times in December.)

The premise of the hand-wringing coverage never made any sense — why would the president of the United States be held responsible for the shipping and handling of private companies? Biden didn’t run for office on some kind of Kris Kringle platform, promising to deliver all Christmas gifts on time.

The press spent the last five months of the year so obsessed with touting an endless list of supposed Biden calamities (remember the White House’s Colonial Pipeline “crisis”?), that news outlets seamlessly added the supply chain to Biden’s To Do list.

Recently, the New York Times was among the few news outlets to double back and to report unequivocally that Christmas gifts were delivered on time, despite the media hype to the contrary. “The UPS and the Postal Service delivered about 99 percent of their packages on time by that measure between Nov. 14 and Dec. 11, and FedEx was close behind at 97 percent,” the newspaper reported.

But note how the Times suggested “people” had been expressing concern this season about gifts not arriving on time. (“A few months ago, people worried that a disrupted supply chain would ensnare Christmas gifts. It didn’t happen.”) In truth, it was the press and Republicans — not everyday consumers — who were ceaselessly beating that anxious drum.

There was also no mention of Biden in the Times’s good-news write-up about shipping. Back in the fall, the media constantly tied the president to the supply chain issue. “The [shipping] disruptions have also become a problem for President Biden, who has been vilified on Fox News as “the Grinch who stole Christmas,” the Times reported in November. In December, when the picture had improved dramatically, the Times made no reference to Biden, or suggested the update represented welcome political news for the White House.

That stems from the media’s fierce commitment to the Doomed Biden Economy narrative, even though it’s becoming increasingly difficult to sustain.

America’s economy improved more in Joe Biden's first 12 months than any president during the past 50 years notwithstanding the contrary media narrative contributing to dour public opinion,” wrote Matthew Winkler at Bloomberg, breaking from the media pack to tout positive news. “Corporate America is booming because the Biden administration's Covid-19 vaccination programs and $1.9 trillion American Rescue Plan reduced the jobless rate to 4.2 percent in November from 6.2 percent in February, continuing an unprecedented rate of decline during the Covid-19 pandemic.”

Today, Biden gets little credit. He currently nets the lowest economic rating from voters of any president at this point through their first term since Jimmy Carter in 1977, according to CNN.

Why the disconnect? A recent YouGov poll found that by an amazing 6-to-1 ratio, Americans had heard “mostly negative news stories about the economy,” including endless doomsday predictions about the supply chain, no doubt. Those polling results came in the wake of a new media study that showed Biden getting worse coverage from the Beltway press than Trump did one year ago, when the vaccine-less U.S. economy was being strangled by the pandemic.

It was strange watching the media root for a supply chain Christmas debacle this year. It was even stranger when they ignored the fact it never happened.

Economists Debunk Manchin's Gripe About Build Back Better And Inflation

When Sen. Joe Manchin of West Virginia announced, during a Fox News appearance on December 19, that he was still a “no” vote on the Build Back Better Act — after months of negotiating with President Joe Biden and Democratic members of Congress — he cited inflation as one of his main concerns. And Manchin discussed his fears about inflation some more during an interview with West Virginia’s MetroNews the following day.

But according to CNN’s Tara Subramaniam, many economists are saying that the BBB Act would have only a “marginal” effect on inflation.“It’s important to put Manchin's inflation fears in the proper context,” Subramaniam explains. “For most of the past decade, inflation in the U.S. was historically low — this despite years of low-interest rates following the Great Recession. But the coronavirus changed all that, and as the global economy has recovered from the pandemic-induced downturn, prices have spiked, rising at the fastest rate in the US in almost four decades.”

Subramaniam notes that on December 23, the Bureau of Economic Analysis reported that the PCE Price Index — which is used to measure inflation — had increased by 5.7 percent during a 12-month period. That was the most rapid inflation increase since 1982.

“With prices rising so fast,” Subramaniam observes, “critics have claimed that it's dangerous to throw trillions of dollars in fiscal stimulus — if you add up the already-passed $1.9 trillion American Rescue Plan and the $1.2 trillion infrastructure bill to the $1.75 trillion Build Back Better Plan — onto an economy where prices are already soaring.”

But Subramaniam adds that Larry Summers, who served as secretary of the Treasury Department under President Barack Obama, “isn’t so worried” about the Build Back Better Act — although he has voiced concerns that too much stimulus could overheat the U.S.

Mark Zandi, the chief economist for Moody's Analytics, told CNN, “One shouldn't vote for or against this legislation based on the impact on inflation…. Maybe on the margin, it adds a bit to inflation next year, the year after. Maybe on the margin, it reduces inflation in the longer run. But taking a step back, it does not have a meaningful impact on inflation.”

Justin Wolfers, a professor of economics at the University of Michigan, told CNN that “roughly speaking, Build Back Better is not inflationary.”

Wolfers argued, “Manchin either fails to understand the inflation concerns or fails to understand the structure of the bill. The inflation surge is today; it’s expected to be gone soon. Build Back Better, if it does anything to the economy, will be, most of it, several years hence…. If you wanted to spend $2 trillion in 2021, that would be inflationary, but that is not at all what the bill does.”

Marc Goldwein, senior vice president and senior policy director for the nonpartisan Committee for a Responsible Federal Budget, discussed the BBB Act with CNN as well —saying, “We think that in the first couple of years, there's about $250 billion of spending. By the third year, over $300 billion; (it) peaks in 2025 at almost $400 billion of spending and tax cuts, and ramps down to about $150 (billion) a year by the end.”

Article reprinted with permission from Alternet

Numbers Shows Joe Biden's Economy Is Actually Beating The World

The U.S. economy is expanding at a seven percent rate over the last three months, up by five percent from the beginning of the year. That number isn’t just three times the expected growth rate in Europe, it almost doubles the rate of growth in China. As reported in The Wall Street Journal, the U.S. economy is genuinely a world-beater. It’s doing so well that for the first time in years, “The force of the American expansion is also inducing overseas companies to invest in the U.S., betting that the growth is still accelerating and will outpace other major economies.”

Less than two months into his presidency, Biden pushed through the American Rescue Plan. That plan provided emergency payments to every American, an increase in the Child Tax Credit, extended unemployment payments for those nearing the end of their benefits, lowered the cost of health care subsidies, picked up 100 percent of COBRA costs, and offered a host of benefits for small businesses that included outright grants. It took the better part of a year to get the Infrastructure Investment and Jobs Act through Congress, but by that point the economy—bolstered by Biden’s policies, a renewed confidence from business leaders, and a robust rollout of vaccines against COVID-19—had cut unemployment numbers by a full two percent.

Rolling into the holiday season, America is enjoying record low levels of unemployment and levels of economic growth that exceed the wildest unfulfilled promises of Donald Trump. But at the same time, CNN reports that President Biden’s approval levels for handling the economy are at record lows. The best economy in 50 years enjoys just a 44 percent approval rating.

Because a disaster-addicted media will find disaster, even if it has to create it.

The front page of Wednesday’s New York Times contains nothing about the record pace of the economy. It does contain dire warnings about supply chain issues affecting Christmas gifts and what seems to be an obligatory feature on the threat posed by inflation. Cost of baguettes is up in Paris! Sacré bleu! CNN offers up the story about Biden’s bad economic ratings but nothing on the booming economy. The Washington Post is economy-free when it comes to their front page—either on paper or internet.

For most of the year, the Times has led the way pounding on the drum about inflation. It doesn’t matter if the focus was the cost of burritos or the end of the $1 pizza slice, the Times has been there to keep the inflation hysterics running at an extra-high pitch. The New York Times even hosted an online chat so that people could share how they were “victims” of rising inflation. That story about $1 pizza? A phenomenon that largely existed only in New York City to begin with? That was page one.CNN and other outlets have certainly not been slackers on the economic doom front. Every penny increase in the price of gasoline became a screaming headline. And repeatedly—repeatedly—outlets ran stories in which they quoted people making outrageous claims of 30 or 40 percent inflation without bothering to correct those claims.

There are no headlines to report that gas prices are down. There are no headlines to report that America is enjoying the best economy in 50 years under Biden.

There are no headlines to report a simple truth: The economy is not just booming because of Biden’s economic policies, or even because Biden’s work in fighting the pandemic has reassured business about the future. The economy is booming because, under the control of Donald Trump, no one knew what was coming next. Trump’s policies were utterly dependent on who had most recently kissed his butt, what industry he vaguely connected with a political enemy, and what he thought would piss off people who had not invited him to the best parties in New York City.

The economy is not just booming under Biden because Biden’s policies are good—even though those policies are good. The economy is booming under Biden because the economy was repressed under Trump, squashed under a weight of fear and uncertainty spawned by Trump’s erratic, spite-based approach. Trump handed out money to companies that had no evidence of potential, and he denied to it industries that he saw as aligned with his enemies.

Rationality turns out to be a better economic stimulus than owning the libs. But you wouldn’t know it from the media.

Five years of dealing with Trump demonstrated to the media that there was no better way to grab eyeballs than reporting the daily lies, insults, and disruptions. But what to do when there is no stream of verifiable lies? No Twitter rants filled with threats and childish names? What does the media do without their predigested disaster of the day?

Well, they can always create one. For the moment, the swelling omicron wave is satisfying the need to fill the page with legitimately downbeat articles. But don’t worry. There are Times reporters hard at work gathering unverified anecdotes to explain why inflation is going to make your next meal require a mortgage.

In the meantime, America is enjoying an economy that’s the envy of the world. And a press … that isn’t.

And when it comes to that issue with supply chains, here’s a part that isn’t getting much coverage:

Major U.S. ports are processing almost one-fifth more container volume this year than they did in 2019, even as volumes at major European ports like Hamburg and Rotterdam are roughly flat or lag behind 2019 levels. The busiest U.S. container ports are leaping ahead of their counterparts in Asia and Europe in global rankings as volumes surge.


Article reprinted with permission from Daily Kos

Goldman Sachs Issues Dire Warning After Manchin Kills Build Back Better

During a Sunday appearance on Fox News, Sen. Joe Manchin of West Virginia declared that he is still a “no” vote on the Build Back Better Act of 2021 — a declaration that has infuriated many of the centrist senator’s fellow Democrats. But progressive Democrats like Rep. Ayanna Pressley of Massachusetts and Rep. Pramila Jayapal of Washington State aren’t the only ones who are disappointed; Goldman Sachs, CNN reports, isn’t happy either.

In a research report released on December 19, Goldman Sachs’ Jan Hatzius warned, “A failure to pass BBB has negative growth implications.” Hatzius told clients that because of the “apparent demise” of the Build Back Better Act, the Wall Street outfit now expects GDP (gross domestic product) to grow at 2% rather than 3% during 2022’s first quarter.CNN’s Matt Egan reports, “The bank also trimmed its GDP forecasts for the second quarter to 3% from 3.5% previously and the third quarter to 2.75% compared with 3% previously. It specifically pointed to the expiration of the child tax credit and the lack of the other new spending that had been anticipated.”

During his Fox News appearance, Manchin cited concerns about “inflation” as one of the main reasons why he won’t vote for the Build Back Better Act in its present form.

On Monday, December 20 broadcast of MSNBC’s Morning Joe, conservative host Joe Scarborough (a former GOP congressman) speculated that in 2022, perhaps some version of the Build Back Better Act will be on the table if Democrats in Congress agree to more compromises. But Goldman Sachs expressed doubts that Build Back Better is going to pass at all.

Goldman Sachs economists, in their December 19 report, explained, “The inflation concerns that Sen. Manchin and others have already expressed are likely to persist, making passage more difficult. The Omicron variant is also likely to shift political attention back to virus-related issues and away from long-term reforms.”

Following his Fox News interview, Manchin released a statement saying, “I have always said, 'If I can't go back home and explain it, I can't vote for it.' Despite my best efforts, I cannot explain the sweeping Build Back Better Act in West Virginia, and I cannot vote to move forward on this mammoth piece of legislation.”

Chamber of Commerce Earns Big Pinocchio Nose For False Claim About Build Back Better

Reprinted with permission from The American Independent

The nation's largest corporate lobby is trying to defeat President Joe Biden's $1.75 trillion climate and caregiving infrastructure plan, arguing it would make inflation even worse.

In a new radio ad released Wednesday, the political arm of the U.S. Chamber of Commerce presses Sen. Kyrsten Sinema (D-AZ) to oppose the Build Back Better plan over inflation concerns.

"Higher gas prices and skyrocketing grocery bills are crippling Arizona families. But we count on Sen. Kyrsten Sinema to be our voice, someone who will stand up for us. Like when it comes to the reconciliation bill that would add to inflation," a narrator claims.

Constituents are urged to call Sinema and tell her to oppose Build Back Better and "stand up for Arizona families." The White House has argued that the bill will help hundreds of thousands of Arizona families by providing more affordable child care, health care, long-term care, and housing.


Last Friday, the lobbying group demanded Congress halt consideration of the package.

"With prices rising 6.8% over the past year, squeezing budgets for families and small businesses alike, it is time for Congress to hit pause on the reconciliation bill and not add any more fuel to the inflationary fire," Neil Bradley, the group's executive vice president and chief policy officer urged. "Rather than 'building back better'– the reconciliation bill will just be bringing back bad inflation."

The lobbying behemoth, which represents many of the nation's largest corporations, does not like the fact that Build Back Better would be partially funded by collecting more in revenue from the nation's largest corporations.

It argues, "The proposed tax increases, including a new corporate minimum tax on book income, a new tax on stock buybacks, and tax increases on U.S. business income earned abroad, will harm the recovery and hamstring America as we work to compete globally, especially with China."

But it has focused much of its public opposition on the idea that inflation is high and the package "will make it worse." In November, the group published a roundup of "non-partisan and center left experts" who have stated Build Back Better would "add to inflation over the next year."

The inflation argument has been a common talking point for Republicans in Congress and their dark-money backers. But the opposite is likely true.

The White House Council of Economic Advisers has argued the plan would be an "antidote" to long-term inflation, increasing economic capacity and offsetting its costs with new revenue or spending cuts.

Nobel Prize-winning economists and major financial ratings agencies have concurred, saying it will likely have a negligible effect on inflation in the short term and could curb it over a longer period of time.

Even many of the economic experts the group cited while warning of inflation have publicly said Build Back Better will not significantly fuel inflation.

Jason Furman, a former Council of Economic Advisers chair, wrote a November 15 Wall Street Journal opinion piece urging passage of Build Back Better to address the economy's "chronic problems"

"Build Back Better would have a minuscule impact on inflation over the medium and long term," he argued. "The potential short-term effects of Build Back Better on inflation are dwarfed by the good it would do."

Former Treasury Secretary Larry Summers, who has been frequently cited by congressional Republicans as an inflation soothsayer, has also endorsed the package.

He wrote in a November Washington Post piece that it "would spend less over 10 years than was spent on stimulus in 2021. Because that spending is offset by revenue increases and because it includes measures such as child care that will increase the economy's capacity, Build Back Better will have only a negligible impact on inflation."

Mark Zandi, chief economist for Moody's Analytics, told Reuters in November that Build Back Better and the now-enacted Infrastructure Investment and Jobs Act "do not add to inflation pressures, as the policies help to lift long-term economic growth via stronger productivity and labor force growth, and thus take the edge off of inflation."

In a Fox Business interview on Wednesday, Zandi said "the inflation we're observing now, the high inflation — that has nothing to do with fiscal policy, that has nothing to do with the Build Back Better agenda." He added that it would lift long-term economic growth by "raising labor force participation, so lowering the cost of work."

The House passed its version of Build Back Better on Nov. 19, despite unanimous GOP opposition. The bill is now pending in the Senate.

A spokesperson for the organization did not immediately respond to an inquiry for this story.

Why I’m Not (Very) Worried About Inflation

For a long time, inflation has been the phantom of the American economy: often expected but never seen. But the latest Consumer Price Index, which showed that prices rose by five percent from May of last year to May of this year, raises fears that it is breaking down the front door and taking over the guest room.

The price jump was the biggest one-month increase since 2008. It appears to support the warning of former Treasury Secretary Larry Summers, who wrote in February that President Joe Biden's budget binge could "set off inflationary pressures of a kind we have not seen in a generation." Senate Republican leader Mitch McConnell charged last month that the administration has already produced "raging inflation."

For anyone who lived through the turbulence of the 1970s, when the CPI climbed year after year, peaking at a rate of more than 13 percent, the specter of inflation is enough to induce night terrors. One of the great governmental marvels of the past 40 years was the Federal Reserve's complete conquest of this malady. To let it return would be a grievous setback.

There are reasons to think that could happen. The Fed has pumped huge sums of money into the economy to offset the effects of the pandemic, and the Biden administration got Congress to approve a huge economic relief package. Americans saved a lot over the past year, and if they decide to burn through all that cash, they could push prices still higher.

At this point, though, watchful concern is a more appropriate attitude than outright alarm. For now, I'm not worried — not very worried, anyway — about inflation.

Why not? One reason is that a spike in prices is not inflation any more than a stretch of rain is Noah's flood. It's no surprise that prices in May were appreciably higher than a year earlier — when much of the economy was shut down because of the pandemic.

Prices will keep going up as life continues to return to normal and Americans rush to spend money on all the things they missed because of COVID-19. Lingering supply chain snarls will put additional pressure on prices. But this should be a one-time phenomenon. Inflation is not inflation unless it persists over months and years.

Another reason for optimism is that even when it was trying to raise the inflation rate, during and after the Great Recession, the Federal Reserve found it remained stubbornly low. The central bank's monetary expansion should have brought about the higher inflation it sought. But it didn't — suggesting that something has changed about the connection between the money supply and consumer prices.

Back then, conservative critics forecast an outbreak of inflation caused by easy money and excessive federal spending. In 2009, economist Arthur Laffer wrote, "We can expect rapidly rising prices and much, much higher interest rates over the next four or five years." Sen. Rand Paul (R-KY) said Americans should be "prepared to carry money to the grocery store in a wheelbarrow."

Let's hope their hallucinations have subsided. If those policies didn't cause inflation then, they may not cause it now. Stable prices have become the intractable norm over the past quarter-century, for reasons we don't fully understand. Loose fiscal and monetary policies don't seem to matter the way they once did.

One danger is that the recent price increases will fuel inflationary expectations, prompting businesses to raise prices and workers to demand higher wages, setting off a self-perpetuating upward spiral. But what inflationary expectations are we talking about?

Data compiled by the Federal Reserve Bank of St. Louis indicate that, as of June 10, the expected inflation rate over the next five years is just 2.23 percent. Interest rates on 30-year mortgages have fallen below three percent, compared with nearly five percent in 2018.

Given their performance over the past 13 years, it's not unreasonable to believe that the Federal Reserve officials who set monetary policy actually know what they're doing. When the pandemic hit, the economy was well into the longest peacetime expansion ever — and inflation was still subdued.

Fed Chairman Jerome Powell and his colleagues have earned the benefit of the doubt. They haven't forgotten the trauma of the 1970s, and they don't want to go down in history as the people who brought it back.

When prices jump, vigilance against inflation is entirely justified. But we should also watch out for false alarms.

Steve Chapman blogs at http://www.chicagotribune.com/news/opinion/chapman. Follow him on Twitter @SteveChapman13 or at https://www.facebook.com/stevechapman13. To find out more about Steve Chapman and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.