There are no less than 200 monthly reports on the economy.  Experts bicker about which reports are the most important.  In normal times, the “jobs report” and the JOLTs report get the most attention.  Both of those reports have been quite positive in recent months.  Unemployment at 3.8% is terrific.  The JOLTs Report (Jobs Openings and Labor Turnover) is also terrific, with ten million job openings for eight straight months.  So, how come consumer sentiment is the lowest since 2011?  It is because they are freaked out by inflation, with wage inflation up 5.1 percent year-over-year and prices rising even faster.

Initially, it was thought that inflation was “transitory” and would slowly decrease.  One reason was that nobody knew the pandemic would come in waves, with each new variant.  From a monetarist standpoint, the Fed caused inflation by increasing money supply so rapidly, in order to save the Covid-crippled economy.  You’ve heard “too many dollars chasing too few goods” bidding up the price of goods.  Last week, the Fed stopped “quantitative easing” and is expected to start raising interest rates this week.  Monetary policy is definitely becoming less stimulative, taking some pressure of inflation.

From a Keynesian standpoint, the American Rescue Bill and other Congressional actions caused demand for goods and services to rise more quickly than the supply of goods and service.  The supply chain problems contributed greatly to this, by dampening supply.  Increasing demand faster than supply = inflation!

Stopping inflation is not considered difficult.  You just need a good old-fashioned recession, but that’s what politicians fear.

Readers will recall I have not been worried about policy-made inflation, whether monetarist or Keynesian.  Instead, I have been afraid that “inflationary expectations” would become irrational and hard-to-change.  In other words, if we all believe prices are going up, it becomes a self-fulfilling prophecy and is more difficult to control.  With gas prices rising so quickly and grain prices expected to rise significantly, it is nearly impossible to convince any voter that inflation is transitory.