On the issue of future inflation, every respectable economist agrees on the following two points:
- A big part of the current problem is created by supply bottlenecks resulting from the pandemic which will be resolved in a short period of time; and
- The real question, in the long run, revolves around the long term public expectations regarding the inflation rate.
The next questions, then, should focus on who will create the public expectations, and how it will be done.
Inertia, demographics, and globalization are on the side of those who predict low inflation rates. On the other hand, the people who stand to lose from inflation–creditors, employers, investors, and retirees–are disproportionately Republicans, and have plenty of access to popular media outlets. They have a powerful vested interest in screaming about inflation. You can count on them to do so.
Will the inflation chorus on Fox News and in the WSJ translate into ongoing worker demands for higher wages, and thus higher prices and interest rates? I’m guessing not, and the bond market currently agrees with me. It is early days, however.