However, as those elder Americans will attest, today’s price rises, as undesirable as they are, are nothing compared to those in the 1970s and early 1980s. What’s more, for policymakers trying to deal with today’s price spikes, the factors that fueled the double-digit price increases in those days are no longer a factor and are unlikely to be in the future.
“From that event, we learnt our lessons,” said Louis Johnston, an economics professor at College of Saint Benedict in Minnesota.
Presidents Gerald Ford and Jimmy Carter both attempted but failed to control costs. Among Ford’s efforts was a “The “Whip Inflation Now” (WIN) campaign, complete with gleaming red buttons, did little to help with inflation. In late 1974, shortly after assuming office, inflation reached 12.2 percent, nearly twice the annual rate of increase through November of the previous year.
In March and April of 1980, the inflation rate reached a new high of 14.6 percent. Carter was defeated in the election that autumn as a result of it. It also resulted in huge economic changes in the United States.
Today’s unadjusted annual inflation rate is 7.1 percent, the biggest 12-month change since June 1982.
Here are some of the significant differences between today’s US economy and the 1980s economy:
Wages tied to prices
One of the significant contrasts between inflation then and now is that there was a considerably higher number of unionized workers in the US, and many of those workers had Cost of Living Adjustments, or COLAs, written into their contracts. As prices rose, this immediately increased their wages. As a result, increased prices led to greater wages, putting more money in the hands of consumers while increasing corporate costs. It triggered the so-called “wage-price spiral,” which fueled increased prices.
Even non-union enterprises would raise wages to keep up with inflation to avoid losing workers to unionized employers or giving ammunition to union organizing campaigns.
Only approximately 12% of workers are represented by unions today, which is less than half of the figure in 1983, the first year for which the government collected data. The majority of today’s unionized workers are government employees, such as teachers, police officers, and firefighters. Only 7% of private-sector workers belong to a labor union. And the majority of those contracts do not include COLA clauses. During the prolonged era of low inflation during the last two decades, unions were willing to forego COLAs in exchange for other salary and benefit increases.
The only COLA that is now in place is for Social Security claimants, and employers do not believe that setting salaries to compete with those benefits is necessary.
Wages are growing as a result of a record number of job opportunities and a labor shortage. However, because those pay gains are less than inflation, they are unlikely to result in higher pricing.
A global check on prices
Because competition from outside imports was not as fierce in the 1970s and 1980s as it is now, higher costs could be passed on to consumers more easily in the form of higher prices.
While there was clearly competition from abroad at the time, in many sectors of the economy, businesses only had to worry about domestic competitors. That is no longer the case.
In recent decades, a growth in global trade has kept inflation in control. Part of today’s inflation is due to issues with the global supply chain, which has resulted in an increase in shipping prices around the world. As a result, the supply of low-cost competition has been limited, allowing even major domestic enterprises to boost their prices.
Oil shocks hurt worse back then
Rapidly rising energy prices are a common component in both the record inflation of the 1970s and 1980s and today’s inflation.
Following the Arab-Israeli War in 1973, Arab OPEC countries imposed an embargo on oil imports to the United States, which lasted until 1974. In 1979, the Iran-Iraq war cut off supply as well.
Prices soared due to a scarcity of supplies. In early 1980, drivers faced a 69 percent increase in petrol costs compared to the previous year, which was much worse than the 58 percent yearly increase experienced through November of this year.
Large percentage rises in oil and gas costs this time are partly owing to comparisons to very low prices in 2020, when stay-at-home orders and widespread temporary job losses caused a glut of oil, resulting in momentarily negative oil prices.
Because of the lower prices, oil producers have reduced output and some refineries have closed. When demand returned this year, the limited supply and high demand conspired to push prices higher.
Although oil and gas prices are likely to remain stable or rise in the next months, the good news is that the US economy is far less reliant on oil now than it was 40 or 50 years ago.
Moving away from an economy based on energy-intensive industries like manufacturing and toward one based on service industries has lessened our need on oil.
“The reduced energy intensity of the American economy is one of the most underestimated shifts,” Johnston remarked.
When overall energy consumption is compared to gross domestic product, the broadest measure of a country’s economic activity, the US economy uses approximately a third of the energy per inflation-adjusted dollar of economic activity it did in 1970, and about 44% when inflation peaked in 1980.
The oil shocks of the 1970s and 1980s drastically reduced oil’s use as a source of power generation, to the point where it now accounts for less than 1% of total electricity output. More crucially, while driving many more miles, much more fuel-efficient cars reduced oil use. As a result, Americans spend significantly less on oil than they do on other products.
Deregulation
Another notable difference in the US economy is that the government now plays a considerably smaller role in price fixing than it did previously.
According to Johnston, deregulation of industries including telecommunications, airlines, and trucking began as a reaction to high costs in the 1970s and 1980s. Government-controlled prices stifled competition and artificially raised prices and services available to customers.
Despite the fact that the real changes in the law didn’t take effect until after the inflation dragon had been slain, deregulation has helped to keep costs for many of those goods and services lower than they would have been otherwise.
Inflation was finally brought under control, thanks in part to the Federal Reserve’s chairman, Paul Volcker, raising the federal funds rate to a record high of 18.9%, triggering recessions in 1980 and 1981-82. The inflation rate had dropped to 4.5 percent at the conclusion of the second recession, and it wouldn’t reach 5% again until 1990.
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Why was there inflation during the Carter presidency?
Inflation has continued unabated into 2021, with no indications of abating, raising fears that the United States may experience a replay of what occurred under President Jimmy Carter in the 1970s.
As a result of an oil price shock that began when Iranian oil workers went on strike, the United States endured double-digit inflation and unemployment under Carter.
Year after year, prices rose, owing in part to anticipation of continued inflation, which prompted companies to raise prices even higher.
Inflation was over 11 percent on average in 1979 and nearly 14 percent in 1980 at the time. The current rate of inflation is not nearly as high, but five months of inflation above 5%, including 6.2 percent in October, is not an encouraging trend when compared to the average rate of 2%.
What was the reason of the 1970s inflation?
- Rapid inflation occurs when the prices of goods and services in an economy grow rapidly, reducing savings’ buying power.
- In the 1970s, the United States had some of the highest rates of inflation in recent history, with interest rates increasing to nearly 20%.
- This decade of high inflation was fueled by central bank policy, the removal of the gold window, Keynesian economic policies, and market psychology.
In the 1960s, what caused inflation?
As Janet Yellen explains, inflation in the United States is acting differently than it has in the past, confounding conventional economic theories and contributing to the Federal Reserve’s decision to keep interest rates extraordinarily low despite unemployment reaching a 50-year low.
Low unemployment in the 1960s pushed up wages and consumer prices. High oil prices in the 1970s spurred self-fulfilling predictions that other prices would climb fast as well. Inflation was pushed down from historic highs in the 1980s due to a severe recession with unemployment reaching 10.8%.
Inflation, on the other hand, has remained modest and constant over the last three decades. During the gradual recovery from the 2007-9 recession, inflation, excluding food and energy prices, decreased and remained below the Fed’s 2 percent objective.
What caused the Carter administration’s stagflation?
Consumer prices are rising, and there are gasoline shortages, raising fears that the US economy could revert to the nightmare stagflation of President Jimmy Carter’s administration in the late 1970s.
As a result of an oil price shock that began when Iranian oil workers went on strike, the economy under Carter endured double-digit inflation and unemployment.
“America was energy-independent six months ago. We now have gas queues “Kevin McCarthy, R-California, is the House Minority Leader. “President Biden is well on his way to resurrecting the Carter economic model.”
What caused the 1980s’ high inflation?
The early 1980s recession was a severe economic downturn that hit most of the world between the beginning of 1980 and the beginning of 1983. It is largely regarded as the worst economic downturn since World War II. The 1979 energy crisis, which was mostly caused by the Iranian Revolution, which disrupted global oil supplies and caused dramatic increases in oil prices in 1979 and early 1980, was a major factor in the recession. The sharp increase in oil prices pushed already high inflation rates in several major advanced countries to new double-digit highs, prompting countries like the United States, Canada, West Germany, Italy, the United Kingdom, and Japan to tighten their monetary policies by raising interest rates to keep inflation under control. These G7 countries all experienced “double-dip” recessions, with small periods of economic contraction in 1980, followed by a brief period of expansion, and then a steeper, lengthier period of economic contraction beginning in 1981 and concluding in the final half of 1982 or early 1983. The majority of these countries experienced stagflation, which is defined as a condition in which interest rates and unemployment rates are both high.
While some countries had economic downturns in 1980 and/or 1981, the world’s broadest and sharpest decrease in economic activity, as well as the highest increase in unemployment, occurred in 1982, which the World Bank dubbed the “global recession of 1982.”
Even after big economies like the United States and Japan emerged from the recession relatively quickly, several countries remained in recession until 1983, and high unemployment afflicted most OECD countries until at least 1985. Long-term consequences of the early 1980s recession included the Latin American debt crisis, long-term slowdowns in the Caribbean and Sub-Saharan African countries, the US savings and loans crisis, and the widespread adoption of neoliberal economic policies throughout the 1990s.
What caused inflation in the United Kingdom in the 1970s?
Stagflation is defined as a rise in the price of products such as medicines, staple foods, and energy while overall economic growth declines.
Stagflation, on the other hand, is most obvious and severe when it occurs as a result of a large-scale economic shock, such as the 1970s oil crisis or the coronavirus epidemic. To learn more, go to: In order to plan for the future, you must calculate inflation.
What caused stagflation in the 1970s?
The 1970s stagflation forever altered the way financial officials think about keeping economies stable and healthy.
Prior to this, it was considered that periods of high inflation were unaffected. It was expected that as the economy grew, firms would hire more people to expand, resulting in more supply to absorb the increased demand for goods and services, lowering prices.
In the late 1960s, inflation was on the increase in most of the industrialized world, including major economies such as the United Kingdom and the United States.
After that, there was the oil crisis. Members of the Organization of Arab Petroleum Exporting Countries announced in October 1973 that any country viewed as backing Israel in the Yom Kippur war would face an oil embargo.
Learn more about RPI vs. CPI inflation and the distinctions between the two.
Oil crisis of the 1970s
The embargo meant that countries like the United States and the United Kingdom could no longer import oil from key Middle Eastern countries, causing oil prices to skyrocket by 300 percent.
In March 1974, the embargo was lifted. However, the consequences reverberated throughout the 1970s, with governments being obliged to ration essential oil supplies.
In the United Kingdom, inflation soared from 9.2% in September 1973 to 12.9 percent in March 1974, while unemployment also increased dramatically.
The government was compelled to ration electricity, and there were frequent power outages and a three-day work week was imposed.
In a desperate attempt to save energy, the United Kingdom and the United States imposed stringent speed limits on their highways. Long lines at the gas station were typical.
What factors contributed to the 1970s economic crisis quizlet?
What was the root of the 1970s’ economic woes? Is it possible that they could have been avoided? Increased international competition, the cost of the Vietnam War, and the loss of industrial employment are all factors to consider.
In 1974, why was inflation so high?
This is how the tale goes: The Vietnam War cost President Lyndon B. Johnson a lot of money. The economy was saturated with money as a result of wartime spending, and prices began to rise. The entire economy lost faith in the assumption that prices would remain stable as a result of LBJ’s extravagant spending and the Federal Reserve’s willingness to tolerate it. Once everyone expected inflation, it became a self-fulfilling prophecy: workers demanded higher salaries because they expected prices to rise; businesses raised their prices because they expected wages to rise; and so on, in an ever-escalating “wage-price spiral.”
The inflation rate was nearing double digits, or possibly higher, towards the end of the 1970s, depending on the measure.
The Federal Reserve’s new, bold strategy brought the experience to a close. Now, here’s a quick rundown of how the Federal Reserve influences the economy: The Federal Reserve, in general, is in charge of determining how much money is flowing in the economy at any particular time. Inflation can occur when there is too much money; too little money can result in low inflation, but it can also cause firms and families to have difficulty borrowing money, bringing the economy to a halt.
The Fed chose to grind the economy to a halt in 1979 in order to control inflation. When Jimmy Carter appointed Paul Volcker as Fed chair that year, he raised interest rates, effectively shutting off the Fed’s money supply and warning to markets that additional rate hikes would follow until the situation was resolved.
Inflation began to fall gradually, but two harsh recessions in the early 1980s pushed the jobless rate to its highest level since the Great Depression. The method worked because the Fed demonstrated its willingness to “shed blood, lots of blood, other people’s blood” to bring inflation under control, according to Reagan aide Michael Mussa.
Today, that story lingers over the economy. Inflation-watchers see the high-spending Biden administration and its extremely cooperative economic policy partner, Federal Reserve Chair Jerome Powell, as a replay of the 1970s inflation story.
Biden signed a $1.9 trillion stimulus bill less than two months after taking office, with the majority of the money going toward $1,400 payments to most Americans. Powell is accommodating this strategy by keeping interest rates around zero and buying Treasury bonds, effectively supporting the stimulus with printed money; moreover, during the debate over Biden’s bill, he urged Congress to pursue stimulus, dismissing fears that this would generate inflation.
Worries of a 1970s flashback appear to be justified, with inflation reaching 3.4 percent in May, the highest level in 30 years. But there’s reason to believe that the threat of a rerun is exaggerated. New economic study reveals that the picture of the Great Inflation of the 1970s told by orthodox economics may not be totally accurate.
Other policies and conditions that may have contributed to the tragedy of the 1970s are examined in this new account, which had traditionally been overlooked in historical narratives. This narrative focuses on specific difficulties that drove inflation in the 1970s that are no longer relevant now, such as an energy crisis and upheaval in global food markets.
To put it another way, this time could be different. Understanding this should assist policymakers steer policymakers away from pouring “other people’s blood” unnecessarily.
The standard story of the Great Inflation of the 1960s and ’70s
We can observe that prices began to climb more rapidly year over year during the mid-1960s, using the Fed’s favored measure of inflation.
They varied a little after a brief recession in 1970, but then soared to new heights in 1974-75 and again at the close of the decade. Inflation rose after Volcker’s inauguration in 1979, but quickly fell. It has never again exceeded 4% on an annual basis.
According to popular belief, the Great Inflation was the outcome of a series of policy decisions beginning with President Lyndon B. Johnson’s fiscal policies, particularly the Vietnam War.
While Johnson raised taxes to pay for some of his domestic initiatives, such as Medicare, he and Congress were hesitant to boost taxes to pay for the war. That meant the conflict or more especially, the money spent on the war was boosting the economy at a time when it was already booming, with no taxes to slow things down. The government was just injecting more money into a private economy that didn’t have much spare capacity, implying that the money would only be passed on to consumers in the form of higher prices.
The traditional narrative, on the other hand, focuses solely on Vietnam as the primary reason. The underlying cause has to do with a trade-off known as the “Phillips curve” by economists (named after economist A.W. Phillips).
The Phillips curve is a plot of the unemployment rate against the inflation rate in its most basic form, and it is usually downward sloping: the greater the inflation rate, the lower the unemployment rate. From the Federal Reserve Bank of St. Louis, here’s an example of a Phillips curve graph:
In essence, policymakers in the 1960s believed they could simply move left on the Phillips curve, to a point with higher inflation and lower unemployment, without any suffering, as Brad DeLong argues in his outstanding history of the Great Inflation.
They were, however, mistaken. According to the report, lowering unemployment too low threatens not only higher inflation (as the Phillips curve predicts), but also accelerating inflation, or inflation that continues to rise without halting.
This occurs as a result of expectations: once it is evident that the Federal Reserve is unconcerned about inflation and will do little to curb it, firms and consumers begin to anticipate and plan for it. Workers may demand more pay since they know that $1,000 now will be worth much more in a year or even a month. For the same reasons, businesses will hike prices.
These dynamics produce inflation in the form of increasing salaries and prices, which strengthens people’s expectations of future inflation, resulting in a poisonous loop.
According to economists Richard Clarida (now the Fed’s vice chair), Jordi Gal, and Mark Gertler, inflation was considered at risk of spiraling out of control under Fed policy at the time “because individuals (correctly) anticipate that the Federal Reserve will accommodate a rise in expected inflation.”
With Volcker’s appointment, the tale took a new direction. Volcker slashed interest rates drastically, ostensibly to show that the Fed was serious about suffocating inflation. It would do whatever it takes to enforce the law, including boosting interest rates to levels that caused two recessions in 1980 and 1981-82.
According to Clarida, Gal, and Gertler, Volcker and his successor Alan Greenspan’s policies eliminated the prospect of self-fulfilling inflationary cycles. “The Federal Reserve adjusts interest rates sufficiently to moderate any changes in projected inflation,” the Volcker policy stated.
The (assumed) trade-off between unemployment and inflation
Economists today dispute Johnson’s and his aides’ belief that you can just raise inflation without fear of triggering a spiral and receive lower unemployment as a result.
The NAIRU, a concept that has come to dominate Fed theory in recent decades, lies at the heart of their thinking. That’s the non-accelerating inflation rate of unemployment, or the level of unemployment below which experts predict inflation similar to that of the 1960s and 1970s.
What is the mechanism behind this? The NAIRU is currently estimated by the Congressional Budget Office to be 4.5 percent in the third quarter of 2021. The Fed should not let unemployment, which is currently at 5.9%, fall below 4.5 percent under NAIRU-driven policy, lest it tempt the inflation gods. And, like Volcker did, the way to achieve that is to raise interest rates.
One reason for concern among inflation watchers is that the Fed no longer has an NAIRU-driven policy references to NAIRU have been eliminated from the Fed’s statement of strategy under Powell.
Worriers like Blanchard and Summers are also concerned that Biden is doing what Johnson did with economic stimulus and other domestic spending instead of the Vietnam War; that he is juicing the economy so much that unemployment will quickly fall below the NAIRU, triggering an inflationary spiral that can only be stopped by a painful economic contraction down the road.
The mainstream story comes with two key caveats. One is that you may believe its basic assumption while still believing that the actual NAIRU is very, very low, lower than the CBO estimate of 4.5 percent and even lower than the 3% rate that supposedly caused difficulties in the 1970s. That is, the economy may continue to grow rapidly for a long time while lowering unemployment to historic lows without causing inflation difficulties.
Jn Steinsson, a UC Berkeley professor who, together with his co-author Emi Nakamura, has contributed to making macroeconomics considerably more empirically grounded, believes this is the case. He informed me that he is still convinced that inflation expectations and the credibility of the Federal Reserve are important. However, his study leads him to conclude that NAIRU could be extremely low, and that we could aspire for extremely low unemployment rates without fear of inflationary forces.
“The unemployment rate, if you just track it, it just keeps lowering,” Steinsson told me over the phone, “whether you look at the 1980s expansion, the 1990s expansion, or the 2010s expansion.” It just keeps falling and falling and falling, with no end in sight. Maybe it will at some time, but one point of view is that we’ve never gotten to the point of actual full employment.” Indeed, the US had unemployment at or below 4% for two years prior to Covid-19, with no inflationary issues.
Another caveat to the common scenario is that some economists believe the increase in aggregate demand that led to the Great Inflation in the 1960s and 1970s was partly due to an obscure rule known as Regulation Q, which capped interest rates on checking and savings accounts, rather than Vietnam.
For the first time in 1965, Q’s cap (then 4%) went below the Federal Reserve’s interest rate. This meant that everyone having money in a checking or savings account was earning less than the market rate – they were losing money.
This, according to economists Itamar Drechsler, Alexi Savov, and Philipp Schnabl, resulted in a significant outflow of deposits from the banking sector. This increased aggregate demand by encouraging consumers to spend rather than conserve their money while also contracting the economy since banks had less money to lend out to firms as a result of fewer deposits. With the introduction of Money Market Certificates and Small Saver Certificates, which offered market-rate interest with no caps in 1978 and 1979, Regulation Q was effectively repealed, and the Great Inflation began to fade shortly after.
There are reasons to doubt this story (for example, the Great Inflation happened in a bunch of other countries that didn’t have Regulation Q), but it matches the timing of the rise and fall in inflation eerily well, suggesting that a repeat of that exact situation is unlikely Joe Biden isn’t proposing bringing Regulation Q back.
What if inflation is not about the price of everything, but the prices of a few specific things?
However, there is another big flaw in the popular tale of inflation in the 1970s: it ignores certain extremely significant geopolitical events at the time. When these factors are considered, current fears of a return to 1970s-style inflation begin to fade.
The 1973 oil embargo, which saw Saudi Arabia and its Arab allies stop oil deliveries to the United States and some of its allies in retribution for supporting Israel in the Yom Kippur War, is a minor footnote in the inflation expectations saga. Some, like former Fed Chair Ben Bernanke in his previous academic work with Gertler and Mark Watson, contend that the embargo was largely irrelevant because of the Fed’s reaction, which was to hike interest rates considerably (though not as much as Volcker would later on).
However, that argument appears to be unrealistically dismissive of the consequences of a simple fact: petrol prices nearly doubled between October 1973 and January 1974.
While the oil shock was the most well-known of the period’s supply shocks, it was far from the only one. Prices for commodities of all kinds soared in the 1970s, from oil to minerals to agricultural products like grain. And, in many cases, these booms were obviously linked to supply-side difficulties, rather than price inflation induced by consumers with too much money. The price of grain, for example, soared in part as a result of a major drought in the Soviet Union in 1972, which drastically limited the country’s food production, prompted it to buy the United States’ entire wheat reserves, and pushed up global food prices.
Skanda Amarnath, executive director of the macroeconomic policy organization Employ America, explains that during the 1960s and 1970s, the baby boom in the United States and Europe, as well as the resulting higher population, increased demand for these commodities and goods, and supply struggled to keep up in the absence of more capacity expansion investment.
“A fast speed of investment in everything from houses to oil wells was the response to these demographic-induced shortages,” Amarnath told me. “It takes years of exploration and development in the oil industry to convert initial investment into increased production capability.” That investment would eventually pay off and aid in the alleviation of shortages, but while those shortages raged, the effect may be inflation.
The introduction and removal of President Richard Nixon’s wage and price regulations were another supply-side impact. Nixon terminated the dollar’s convertibility to gold in 1971, removing a crucial component of the system that had been stabilizing exchange rates between the United States and the rest of the world since World War II. Nixon established obligatory wage and price limitations from 1971 to 1974 in an attempt to reduce the aftershocks. Prices were momentarily restrained by the limits until they were lifted, contributing to the inflationary spiral that began in 1974.
Since at least 1979, economist Alan Blinder has argued for a supply-centered explanation, and he and colleague Jeremy Rudd characterized the “supply-side” position succinctly in a 2013 paper.
They point out that the Great Inflation was actually two: one between 1972 and 1974, which “can be attributed to three major supply shocksrising food prices, rising energy prices, and the end of the Nixon wage-price controls program,” and another between 1978 and 1980, which reflected food supply constraints, rising energy prices, and rising mortgage rates. Mortgage interest payments were included in the most widely used inflation measure until 1983, which meant that when the Fed responded to inflation by raising interest rates which in turn led mortgage rates to rise this policy change boosted measured inflation on its own.
The policy implications of a supply-side account for 1970s inflation are vastly different from the “Volcker shock” of high interest rates intended to shrink the economy. Instead of lowering demand and expenditure to meet the period’s lower supply, economists like then-American Economic Association president and future Nobel Laureate Lawrence Klein advocated in 1978 that the government should actively try to raise the supply of certain rare products. This could have taken the form of efforts to increase crop yields or support domestic oil production in the United States.
We’ll never know if it succeeded, but it’s a compelling and in my opinion persuasive alternative to the story we’ve been taught for decades.
What this revised story of the Great Inflation means for policy in 2021
This alternate tale suggests that Federal Reserve Chair Jerome Powell should not contemplate slowing the economy as a blunt tool to keep prices down in 2021. Instead, the federal government should intervene in specific regions to prevent certain sorts of fast growing costs from becoming even more so.
As my colleagues Emily Stewart and Rani Molla have pointed out, the most significant price rises affecting consumers are in the food and beverage sector “In recent months, new and used cars, as well as air travel, have contributed to “core” non-gas or food inflation. According to the Biden Council of Economic Advisers, vehicle prices alone accounted for at least 60% of inflation in June, with a large portion of the rest coming from services like air travel rising in price as everyone rushes back to travel following the pandemic.
A semiconductor shortage accounts for a large portion of the growth in automobile prices, meaning that improving semiconductor supply, particularly increasing production in the United States, might be a better method to combat inflation than raising interest rates. The kind of intervention anticipated by this approach is Biden’s recent efforts to get Taiwan to increase manufacturing for US automakers.
Powell recently testified to Congress that the Fed is thinking along these lines “Supply restrictions have slowed activity in some areas, most notably in the automotive industry, where a global scarcity of semiconductors has drastically reduced production this year.” The same has been said by Lael Brainard, a powerful member of the Federal Reserve’s Board of Governors.
“If you believe this supply-side story is credible, that changes the way you want to think about things,” Steinsson explained. “Someone is going to build a new semiconductor factory at some point, so there’s no reason to use the blunt tool of hiking loan rates across the board.”
Yes, inflation is growing, there is a lot of uncertainty, and the 1970s are looming large. Given how much economic misery was inflicted on millions of people in the struggle against inflation decades ago, it’s reassuring that today’s leaders are more inclined to consider the path that their forefathers did not.
What causes price increases?
- Inflation is the rate at which the price of goods and services in a given economy rises.
- Inflation occurs when prices rise as manufacturing expenses, such as raw materials and wages, rise.
- Inflation can result from an increase in demand for products and services, as people are ready to pay more for them.
- Some businesses benefit from inflation if they are able to charge higher prices for their products as a result of increased demand.
What is creating 2021 inflation?
As fractured supply chains combined with increased consumer demand for secondhand vehicles and construction materials, 2021 saw the fastest annual price rise since the early 1980s.