Broader Sources of Inflation Surfacing

New York, NY, October 4, 2021-While many pandemic-driven price pressures are easing, broader sources of higher inflation are replacing them, reports the Wall Street Journal. 

“That is the message from a slew of alternative inflation measures that strip away price changes due to idiosyncratic swings in supply and demand, and home in on longer-lasting pressures.

“These alternative indexes are signaling ‘inflation is not as extreme as what the headline or traditional core shows right now, but it is picking up,’ said Sarah House, director and senior economist at Wells Fargo.

“‘All of these measures have moved from signaling price stability to signaling sharp accelerations in underlying inflation,’ said Brent Meyer, an economist at the Federal Reserve Bank of Atlanta.

“Some economists interpret this as inflation returning to levels consistent with a healthy economy, after being too low before the pandemic. ‘To now see price pressures picking up, but not at extremely worrying levels-it’s progress,’ said Blerina Uruci, senior U.S. economist at Barclays.

“Inflation as measured by the Labor Department’s consumer-price index was 5.3% in the 12 months through August, close to the highest in 12 years. Economists generally expect that to fall, but disagree on how much. They attribute much of the recent surge in prices to temporary causes-such as a post-vaccine spending upsurge, specific supply-chain problems and other production bottlenecks-that should fade as businesses ramp up output.

“But a key question is whether prices will continue to rise more persistently once these temporary disruptions end.

“The Federal Reserve has argued that inflation will recede to just above its 2% target by 2022. Nonetheless, Fed Chairman Jerome Powell, asked last week whether inflation is now broader and more structural than earlier this year, responded, ‘Yes, I think it’s fair to say that it is.’”