Inflation is everywhere – WSJ

Newspaper Editorial Report: Joe Biden Still Pushing Massive Build Back Better Spending. Images: Reuters/Bloomberg/Getty Images Composition: Mark Kelly

If you can believe it – and at this point you probably can – some people are still saying that the sustained price spike in developed economies is transitory. As comforting as that thought may be for panicked Democratic strategists over November’s midterm elections, a deeper dive into last week’s dire price data suggests that’s not true.

The 7.5% increase in January on an annual basis is quite worrying. But the important fact is that the current inflation is almost everywhere, including the whole world. The UK central bank expects inflation to top 7% this spring and inflation-adjusted living standards to fall by around 2% this year. Eurozone inflation hit 5.1% in January, prompting the ever-dovish European Central Bank to start considering an interest rate hike this year.

This should give the ‘Transitional Team’ a break. The excuse for accelerating US price increases last year was the supply chain, or a pandemic shift to consuming goods instead of services, or a shortage of chips, or some other one-time factor. This could partly explain why the degree of inflation varies across economies, as they experience different price changes due to their own consumption preferences, pandemic policies or otherwise. But that doesn’t explain why everyone still has an unusual level of inflation.

Meanwhile, inflation is becoming more and more prevalent in the US economy. Berenberg economist Mickey Levy reviewed data for more than 200 individual goods and services for which the government tracks prices. A growing number of individual items are subject to higher rates of inflation, he warned on these pages in December.

Its update based on last week’s data suggests the problem is getting worse. Some 73% of items saw annual price increases of 3% or more in January, and some 55% of items saw inflation of 5% or more. Keep in mind that the Federal Reserve’s inflation target is 2%.

This is the pattern that characterized the inflation of the 1970s. The oil crisis was the “supply chain disruption” of its day – the go-to political excuse for inflation. The OPEC cartel has been implicated. But soaring oil prices were a response to monetary policy blunders that unleashed inflation in the late 1960s and then fueled it throughout the 1970s.

This era was also marked by rapid increases in the prices of a wide range of goods and services. At the peak in mid-1980, more than 80% of items in Mr. Levy’s sample experienced inflation above 5%.

The transitional team reassured itself last week that car price inflation finally moderated somewhat in January. Cars were a popular scapegoat for inflation last year. The slowdown in price increases will relieve households that soon have to buy a car. But stable car prices will be cold comfort to households paying higher and higher prices for more and more goods and services.

The lesson of the 1970s is that once inflation sets in, it needs to be brought under control urgently, or it will become embedded and increasingly difficult to control. We are long past the point where the Fed should have tightened policy, and the task will be more painful now because of the delay. The proof of the fallacy of inflation is everywhere you look.

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