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Biden says high inflation is temporary. Economists aren't so sure.

Francesca Chambers and David Lightman, McClatchy Washington Bureau on

Published in Political News

Even as the Dow Jones industrial average plunged 725 points Monday in its biggest drop since October, Biden said the stock market was still higher than it had ever been before.

Economists fear that demand will continue to outstrip supply, which historically pushes up prices.

“Call me irresponsible, I guess,” Michael Shires, an economic expert at the Pepperdine School of Public Policy in California, said in response to Biden. He added that “the chain of production is shaky at best.”

UNPRECEDENTED UNCERTAINTY

Goldwein’s organization, the Committee for a Responsible Federal Budget, held a forum recently where top economists discussed inflationary pressures.

The consensus was that while price increases for certain items, such as cars and lumber, are likely to be transitory because of the supply and demand imbalance, the experts were concerned that inflation could remain at levels not seen in 40 years.

“Not only have forecasters been very wrong about inflation this year, they have been very overconfident,” Jason Furman, the one-time chairman of former President Barack Obama’s Council of Economic Advisers, said at the event.

A key driver of runaway inflation historically is an unexpected jolt to the economy, such as the oil shortages of the 1970s. COVID is the unpredictable factor this time around.

“The uncertainties here are just unprecedented,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, an international economic research firm.

 

Federal Reserve Chairman Jerome Powell acknowledged last week in testimony before a congressional committee that inflation is currently higher than 2%, the mark the independent banking institution typically wants to see.

“The question will be where does this leave us in six months or so when inflation, as we expect, does move down, how will the guidance work? And it will depend on the path of the economy,” he said.

Goldwein noted that even if inflation is zero for the remainder of 2021, prices will have gone up about 3.8% this year. He called a 5% increase “very plausible.”

What he and others fear is the potential for a wage-price spiral, which occurs when price increases persist and workers demand more money. To pay those workers, businesses need to raise prices.

“The current situation in the labor market has no precedent, and hence no basis exists for taking a strong position on what will happen next,” Shepherdson said.

Republicans view the rising prices as an issue that hits home with consumers. House Minority Leader Kevin McCarthy, R-Calif., encouraged GOP members of Congress this week to focus on the issue, while Senate Minority Leader Mitch McConnell, R-Ky., made inflation the theme of a speech on Monday.

“Runaway costs and surging inflation are a huge worry for middle class families,” McConnell. “Every survey confirms it. Every conversation confirms it.”

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