Can Emily Litilla explain inflation for me?

[Burning Petard]

From many news media I hear that current inflation is remarkably high now. It has raised my monthly Social Security stipend starting next month. It has raised the price I pay at the pump to fill my car and the cost at the grocery store for my carrots and canned beans.

But where does this number come from? Sometimes they say is a year-over-year statistic and it is higher now than it has been for decades. OK but what is the base number? What was going on last year? Was there not screaming from various sources that the lock-down and isolation measures required/mandated/recommended by government at all levels was hurting the economy?

What does the USA inflation look like over a longer period, say 5 or 10 years?

snailgate

[Long Run]

Your questions are easily answered with a little research, but as always be a skeptic about the sources you find or you would be better off with Emily's take.

The real question is whether we are seeing temporary inflation caused by. pent up demand, or has the government increased the money supply too much/fast and we have a more sustained inflation.

[ex-khobar Andy]

The real question is whether we are seeing temporary inflation caused by. pent up demand, or has the government increased the money supply too much/fast and we have a more sustained inflation.

There is, I think, not enough evidence yet about how temporary it is. But I think a lot of it is opportunistic. Inflation is happening across the G7 but highest in US, Canada and Germany. G7 mean is around 3%; US is about 5% and Canada and Germany around 4%. Japan actually has a slightly negative inflation at the moment. China is hovering around 2% which is in line with the last 10 years or so.

A large single influencer on CPI is fuel price which of course is most driven by the world oil price which is not something the average government can do much about. I'm willing to bet that countries where driving milage is high have fuel price as a larger component of CPI and hence higher inflation. But also remember this: although we have spent the last two years moaning about the state of the economy and the unemployment rate, most people are better off. If the unemployment rate hit 15% that means that 85% or people are still fully employed with nothing to spend their money on. S&P 500 was 3240 in Jan 2020 and is now 4700. WTF?? That's almost 50% rise in two years of economic gloom. Travel way down, cruises shut down, pubs and restaurants and movie houses closed, Grandma's house is off limits or maybe even Grandma did not survive, so everyone (well, 85% or us) has more $$$ rattling around in their pockets.

For those things for which demand is inelastic, when there are more dollars hunting the same supply, prices will go up. Economics 101. And in a laissez faire marketplace, no-one is saying 'you can't do that.'

[Big RR]

And add to that shortages of big ticket items, like cars, and we can see opportunistic (or capitalistic supply/demand, your choice) price rises which drive inflation; my daughter's car recently expired, and she had to buy a new one. We went to a number of dealers and I couldn't believe what was going on at all of them; new cars were surcharged a few thousand over the sticker price, no exceptions, and later model used cars were priced at near the new car sticker price. But she needed a car to get to work, and we had to gulp hard and pay the price. Not that I entirely blame them, sales were low last year and prices plummeted, so here was their chance to get some of that back.

That's what makes me think this inflation is temporary, but I think it will be with us for a while.