Making Sense of Inflation

"It was once natural to think that prices rise constantly, no matter how many new ways are found to make more crap more cheaply. Inflation was just a part of life in a capitalist society where growth was expected every quarter. When it got a little too high, the main culprits-reckless government spending, low unemployment-had come to seem self-evident, too."

"And for some reason, the consensus was that when inflation exceeded 2 percent-the target rate of the US Federal Reserve and most other central banks-the Fed was supposed to raise interest rates, "cooling" the economy, destroying jobs, and even causing a recession in the process. The educated lay reader might imagine a big knob somewhere that the Fed chairman (Jerome Powell, for now) could turn to increase or decrease the economy's temperature and make life a little harder, or a little easier, for everyone"

"there was an unusual level of public debate. What needed to be done depended on what you believed was causing inflation in the first place. Summers blamed the Covid stimulus spending and all those bored, homebound consumers who spent their checks on more stuff. Together with the pandemic-related supply-chain problems, it looked like a classic case of too much money chasing too few goods."

Inflation had long been treated as an inevitable feature of capitalist growth, with central banks targeting roughly 2 percent and using rate hikes to cool the economy. The Covid-19 era produced a price surge not seen in decades and complicated conventional explanations. Competing causes included fiscal stimulus and excess demand, supply-chain disruptions, and other transitory or structural factors. The debate over causes shaped policy choices, with rate hikes risking higher unemployment or recession. The episode revealed limits of simple monetary metaphors and highlighted complex global, fiscal, and supply-side drivers of inflation.

Read at The Nation