Is Inflation Finally Going to Be a Problem?

“Finally, the mere expectation of inflation can actually bring it to pass.”

Editor’s note: This piece can be read as a companion to the author’s April 5th column “Is the National Debt Finally Going to Be a Problem?”

During their latest trips to the grocery store, gas station, or home improvement store, Americans have noticed that they are paying more than they were not long ago. It is not just their imagination, nor is it unique to food, gas, and building materials: Prices are rising across the board. The Consumer Price Index, a metric that tracks the prices of everyday goods (and through which inflation is commonly measured), showed a 2.6% increase during the 12 month period ending March, 2021.

Like the national debt, inflation is a perennial economic preoccupation that is having something of a moment in public discourse. Concerns have sprung up largely because people are starting to wonder if the federal government is going too far with its monetary response to the Coronavirus (COVID-19) pandemic. This view finds ready confirmation in anecdotal and official accounts of rising prices, including so-called “asset-price inflation,” which some argue official inflation statistics fail to take into account.

As far as I can tell, the first “insider” to give credence to the idea that we may be in danger of engendering harmful inflation was economist and former United States Secretary of the Treasury Larry Summers, who penned an op-ed to that effect in The Washington Post in early February. Since then, there has been a flurry of pieces published, some in agreement with Summers and others seeking to assure the public that he and other inflation predictors are crying wolf.

It is not just economists, financiers, and policy wonks who are talking. A recent survey by Civic Science found more than three-quarters of Americans are concerned about inflation to some extent. Similarly, a survey by the Federal Reserve Bank of New York last month found that consumer expectations of inflation are increasing, to 3.2% over the next year and 3.1% over the next three years.