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Inflation: Could it fade if the pandemic eases?

The latest inflation numbers show a persistent increase

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Despite hopes in Washington that inflation would subside, the latest inflation numbers show a persistent increase that seems to go beyond the supply woes of the pandemic, said Jeanna Smialek in The New York Times. The Consumer Price Index, which tracks costs of numerous everyday items, rose 6.8 percent in November from a year earlier, the largest increase in 39 years. "Policymakers were comfortable dismissing high inflation for a while, saying it came from kinks that seemed likely to eventually work themselves out." That explained sudden spikes for used cars, for instance. But inflation is now coming from sectors like housing "with a less clear-cut, obviously temporary pandemic tieback." That's worrisome for the Federal Reserve, which has begun "tiptoeing away from supporting the economy" and is preparing "to speed up the retreat."

We probably owe Larry Summers an apology, said Jordan Weissmann in Slate. The former Treasury secretary was derided early this year when he raised the alarm about "persistent, self-perpetuating" inflation. Now his warning "appears incredibly dead-on." What Summers was wrong about was why; this is not caused mainly by government spending. Summers is not the only one to blame the inflation on "too much stimulus," said Greg Ip in The Wall Street Journal. Others, meanwhile, point to "pandemic-related bottlenecks and supply chains." Really, though, it's a combination of both heightened demand and limited supply. This is unlike anything the U.S. has seen since after World War II, when "pent-up demand coincided with war-induced shortages." 

November's inflation report was probably the best the White House could hope for, said Thomas Franck in CNBC. "As hot as 6.8 percent year over year inflation is," it fell below some Wall Street expectations. Some economists suggested that there were indications from the report "that inflation could peak in the next few months." It's easy to overlook that President Biden is presiding "over the strongest two-year performance on growth, jobs, and income in decades," said Robert Shapiro in the Washington Monthly. Inflation remains a fly in the ointment. But if price pressures ease, "everything else points to a Biden boom through 2022."

That's a big if, said Brendan Murray in Bloomberg. So far, much of the good news on the supply chain has proved to be a mirage. In November, there were optimistic reports that "a line of more than 80 container ships waiting to dock at ports of Los Angeles and Long Beach, California, was cut in half." Turns out, the vessels were merely further out to sea, out of reach of the official count, now standing at 96. One such ship, the A Kinka, floated for nearly eight weeks before finally getting a chance to unload its cargo in early November, said Stephanie Stamm in The Wall Street Journal. On board were "games that should have reached retailers by September," Halloween boots that missed Halloween, and custom LED lighting for a hotel that could be forced to delay its opening. Smaller businesses have "paid record-high freight rates" just to secure a few containers aboard ships like this one. Now they are racking up more costs as the ships sit and wait.

This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.

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