Bloomberg News reports that Ronald Reagan called inflation “Violent as a mugger”, and according to Milton, it is “a hidden tax”. However, the economists and the central bankers in 2021 have called this inflation, “transitory”.
According to them, the bet was that while the costs would perhaps rise as the economy escapes the recession and lockdown triggered by recession and coronavirus, the pressure would gradually ease.
This scenario may still happen, however, as of now inflation is still accelerating. The prices that Americans shelled out escalated by 6.2% in October as compared to one year earlier, which is recorded as the most since the year 1990.
Behind the failure in forecasting and surge is hidden a lot of success, the combination of monetary and fiscal policies that are unprecedented that could arrest the pandemic from taking the shape of a global depression. Factors that have caused the price index to go up to include tapping into the pent-up savings, disrupted supply chains across the globe, shortage in labor that led to an increase in wage, and a spike in energy prices.
Bloomberg News reports that these factors have left Federal Reserve Chair, Jerome Powell to slow stimulus faster as compared to the one that was earlier anticipated, and that led to President Joe Biden’s step of making a trend reversal as a “top priority”.
A lot depends on the behavior of the consumers and the companies. If they still think and believe that inflation will slow down, they may not be seeking compensation through price hikes or higher pay. However, if they think that the only way for it is up, they may be the ones that will raise the prices in 2022.