No one can predict the future. Economists are trying, but spreadsheets are not a crystal ball for predicting inflation risk.
Here are some thoughts on the current situation:
Is it just transient? There is a good point to make that this is a temporary jump. Prices have fallen dramatically over the past year, and it’s reasonable to see an increase at least to pre-pandemic levels as the economy comes to life.
There is currently an increased demand for goods and services, but also supply bottlenecks which are driving up prices. Many people believe that as these trends normalize, inflation will slow down.
Could prices continue to rise? While soaring inflation (like that seen in the 1980s) is unlikely, some experts are predicting higher inflation growth than we’ve seen for a long time.
When the prices go up for certain things, it’s more likely that other companies will also increase the prices. As Kristin Forbes, an economist at MIT and a former official at the US Treasury and Bank of England, told the New York Times: “Now the genius is out of the bottle. If everyone raises the prices, it also becomes a lot easier for you. “
What are the repercussions? The stock markets reacted badly to the inflation news.
However, the problem is not just inflation. If sustained inflation seems possible, it is likely that the Federal Reserve will raise interest rates in an attempt to slow inflation. This move – making loans more expensive – could slow overall economic growth.