US inflation this year and next

After a difficult couple of years, Americans are now feeling the pinch of higher prices. The cost of fuel, utility bills, weekly grocery shops, and so forth are rocketing, hurting consumer wallets just as they prepare to spend big for the holiday season.

On Nov. 10, the Bureau of Labor Statistics (BLS) revealed that consumer prices rose 0.9 per cent in October and 6.2 per cent compared to a year earlier. That reading marks the fastest annual jump since December 1990 and a substantial leap on the 2 in per cent inflation targeted by the Federal Reserve (Fed)

Most economists blame rising prices on Covid-19. Once lockdown measures ended, people were eager to capitalize on their freedoms and spend some of the money they hadn’t used while being locked up at home, creating pent-up demand at a time when supply chain bottlenecks were rampant.

The pandemic halted the production of all sorts of goods and services substantially, and companies are now either trying to recoup lost income or struggling to get normal services up and running again. The virus generally had the opposite effect on demand. Government stimulus packages, a lack of spending due to being forced to stay at home, and a desire to enjoy life again after what has been a stressful few years triggered a desire to consume, travel, and buy. In short, it is this concoction of low supply and high demand that is prompting prices to shoot up.

Covid-19 affected pretty much all industries, influencing the price we pay for everything from a gallon of gas to a loaf of bread and a pack of bacon.

Each time the BLS publishes its monthly inflation figures, it accompanies its report with a breakdown of price changes by category. In October, the highest annual price rises were reported for fuel, auto rentals, gas utilities, and used cars and trucks.

The hottest debate right now, at least in economics, is whether this pace of price rises will continue. Many economists are confident that current inflationary pressures are temporary and won’t last too much longer. Others are less positive, arguing that Americans—and people in most of the world’s other largest economies—need to adapt and be prepared for more hardship.

A popular theory making the rounds is that current price rises are unusually concentrated and should be ironed out as soon as supply chain bottlenecks and the post-lockdown urge to buy these things subside. In the past, when high inflation numbers were skewed by a handful of goods and services, it didn’t take too long for normality to be restored and prices to settle down.

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