Date: 2025-01-15 Page is: DBtxt003.php txt00021284
US ECONOMY
CONSUMER PRICES
FRED ... Consumer Price Index (CPI) from 1947 to 2020
CONSUMER PRICES
FRED ... Consumer Price Index (CPI) from 1947 to 2020
Original article: https://fred.stlouisfed.org/series/CPIAUCSL
Peter Burgess COMMENTARY
There is a lot of talk in Washington and in the media about inflation, but from my perspective, rather little of the conversation seems to be based on a sound understanding of the economic forces in play.
There was very serious inflation in the 1970s after 1973. The inflation at that time was very different from what has been happening in the past few months in 2021. The inflation that started in 1973 was what I understood to be 'cost-push' inflation.
What we are experiencing today is much more 'demand-pull' inflation. Investors and businesses profit during demand pull inflation cycles. Why else would stock markets in the United States be at record levels?
The inflation in the 1970s lasted for a period of around 8 years. The oil shock of 1973 when OPEC estabished an oil cartel and raised the price of a barrel of crude oil from $3.50 to $13.50, and then later in the decade to more than $30.00 changed the economics of American business and life in the USA more broadly. The US economy was energy intensive ... much more so than anywhere else in the world, and its business had been built on the assumption that oil energy would be abundant and cheap for ever.
American business profits and investor wealth did not start to recover until the 1980s when American businesses atarted to outsource production to low wage countries. The first wave as outsourcing to Japan, and then to China and other countries in Asia. Business profits started to increase while American workers lost almost all their bargaining power.
Reagan gets credited with the strengthening of the US economy of the 1980s, but it was enabled more by rapidly improving logistics and management technology than Reagan's political policies ... though Reagan's support for business and not so much for the workers, played a part.
Now, in late 2021, There is concern and conversation about the current inflation. A large part of the inflation is being driven by the embedded profits that flow through the whole of the supply chain. There are cost issues associated with supply chain disruption which is adding real costs ... but the bigger price driver is a much bigger demand than the system can handle. It would be a good outcome if lower paid workers were to get paid more ... but unfortunately there will still be many workers who are stuck with low wages and little bargaining power.
Peter Burgess