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INFLATION
DIAGNOSIS IS WRONG NYT The Morning ... Inflation’s 40-Year High ... We look at why prices might ease — and why they might not. 
Gasoline prices have risen 48 percent since the start of the year.Credit...Gabby Jones for The New York Times Original article: https://www.nytimes.com/2022/04/13/briefing/inflation-forty-year-high-gas-prices.html Peter Burgess COMMENTARY Peter Burgess | ||
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The Morning ... Inflation’s 40-Year High ... We look at why prices might ease — and why they might not.
By German Lopez April 13, 2022 You're reading the The Morning newsletter. Make sense of the day’s news and ideas. David Leonhardt and Times journalists guide you through what’s happening — and why it matters. Get it sent to your inbox. The overall cost of gas, food and other everyday items is increasing at its fastest rate in more than 40 years. And experts cannot say with confidence whether price increases will speed up or slow down in the coming months. The accelerating price rate — in other words, inflation — hit 8.5 percent in March over the previous year, according to a federal report released yesterday. That was the fastest increase since 1981. 
Year-over-year percent change in the Consumer Price Index ... Source: Bureau of Labor StatisticsBy Ella Koeze Rising gas prices drove more than half of the March increase, largely because of the war in Ukraine and subsequent sanctions on Russia, a major oil and gas producer. But costs for other goods, including housing, increased significantly in March, too. 
Year-over-year changes in a selection of categories of the Consumer Price IndexSource: Bureau of Labor StatisticsBy The New York Times The problem is the same as it has been for the past year: Supply chains are failing to keep up with elevated consumer demand. “It is really a broader imbalance between supply and demand,” my colleague Jeanna Smialek, who covers the economy, told me. American life is subsequently more expensive, with increases in prices so far outpacing gains in wages. In response, the Federal Reserve, the U.S. central bank, is raising interest rates to increase the cost of borrowing money. The goal is to slow down the economy and, therefore, inflation. But some experts worry that the Fed is moving too slowly and that its approach could force it to take more drastic steps to tame prices down the line. The nightmare scenario: The Fed has to tank the economy, as it did in the 1980s by aggressively raising interest rates, to end stubbornly high inflation. Given these stakes, today I want to walk through the reasons that inflation might stay high, and the reasons it might not, over the next few months. Why it might get worse The Federal Reserve aims for an inflation rate of roughly 2 percent a year, trying to strike a balance of high employment levels without runaway price increases. But inflation is running much higher right now, and is also greater in the U.S. than in Europe and other developed countries. There are reasons to believe this will remain a problem for some time. Unexpected events have disrupted supply lines for the past few years and could again. Russia’s invasion of Ukraine has already caused gas prices to spike. Because Ukraine is a major food producer, the war has also increased food prices and may continue to do so. Covid has distorted supply lines since 2020, and future variants and outbreaks could do the same. That is already happening in China, where some places are locking down to try to contain new outbreaks — potentially interrupting the flow of goods from the world’s biggest manufacturer. “Covid is the root of all evil,” Claudia Sahm, an economist at the Jain Family Institute, told me. “It has been extremely disruptive and tragic in people’s lives. It has also been disruptive in their livelihoods.” The longer these disruptions go on, the longer Americans may come to expect inflation to become a regular part of life — and the worse inflation could get as a result. Consider wages: If people expect high inflation, they will demand higher pay. But to pay higher wages, employers are likely to pass that cost to consumers by charging them higher prices. Higher wages could also mean elevated demand, because people will have more money to spend. This “wage-price spiral,” as economists call it, was a major contributor to high inflation in the 1970s. Why it might get better Some experts are optimistic. They believe that inflation could start coming down later this year. “The Fed is very capable of bringing down inflation,” said Adam Ozimek, chief economist at the Economic Innovation Group. “That said, I think there is a lot of risk.” One positive hint, from yesterday’s report: The core inflation index, which measures prices excluding more volatile food and energy costs, increased at a slower rate in March than it did in previous months. That could suggest that inflation is peaking. Gas prices are also already down a bit from a peak in March. Some of that is driven by China’s lockdowns, keeping many potential consumers home. Over time, the world may also adjust to the Ukraine war’s shock to oil and gas markets. The West, for example, could find alternatives to Russian oil and gas, like more U.S. drilling or clean energy sources, to fill current gaps in supply. And the war could end, reducing any further impact on global markets. Meanwhile, Covid cases are declining worldwide. If potential future waves do not cause major disruptions, inflation could cool as supply lines get back to normal. The Biden administration is separately taking some actions, like releasing oil from strategic reserves and allowing summertime sales of ethanol-based gas. But the effects of those moves are expected to be small. Consumer demand could drop as well. Higher prices could discourage some spending. And extra cash from the economic stimulus packages of the past few years, which some experts argue helped fuel inflation, is drying up, leaving Americans with less money to spend. All of that, along with the Federal Reserve’s actions, could put the economy in a better balance between supply and demand in the coming months. For More At grocery stores, prices are rising for beef, poultry, fish, eggs, flour, fruit and milk. The economist Paul Krugman expects inflation to ease, but that “won’t mean that the inflation problem is over,” he argues in Times Opinion. THE LATEST NEWS Subway Shooting Image Wounded people at the 36th Street station yesterday. Wounded people at the 36th Street station yesterday.Credit...Armen Armenian/via Reuters The police named a “person of interest” related to the attack on a subway train in Brooklyn that left at least 23 people injured. The police are still looking for the gunman. At least one of the station’s security cameras wasn’t working, which has hampered the search, officials said. The “person of interest,” a 62-year-old man, appears to have posted video rants online in which he expressed bigoted views. New York has struggled with a crime increase in the subway system. The Times has reconstructed how the shooting unfolded. 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Claire Moses, Ian Prasad Philbrick, Tom Wright-Piersanti, Ashley Wu and Sanam Yar contributed to The Morning. You can reach the team at themorning@nytimes.com. Sign up here to get this newsletter in your inbox. German Lopez is a writer for The Morning, The Times’s flagship daily newsletter, where he covers major world events and how they affect people. @germanrlopez Give this article Editors’ Picks How to Get the Most Bang for Your Buck Why Is My Sleep So Messed Up in the Summer? Eric Kim’s Essential Korean Recipes Continue reading the main story
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