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    Inflation's Worldwide Surge May Be a Good Sign

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    Inflation has surged across advanced economies. The shared experience underlines that price gains come from temporary drivers — for now.Price gains are shooting higher across many advanced economies as consumer demand, shortages and other pandemic-related factors combine to fuel a burst of inflation.The spike has become a source of annoyance among consumers and worry among policymakers who are concerned that rapid price gains might last. It is one of the main factors central bankers are looking at as they decide when — and how quickly — to return monetary policy to normal.Most policymakers believe that today’s rapid inflation will fade. That expectation may be reinforced by the fact that many economies are experiencing a price pop in tandem, even though they used vastly different policies to cushion the blow of pandemic lockdowns.The shared inflation experience underscores that mismatches between what consumers want to buy and what companies are able to deliver are helping to drive the price increases. While those may be amplified by worldwide stimulus spending, they are not the simple result of nation-specific policy choices — and they should eventually work themselves out.“There is a lot of stimulus in the system, and it is pushing up demand and that’s driving higher inflation,” said Kristin Forbes, a Massachusetts Institute of Technology economist and former external member of the Bank of England’s Monetary Policy Committee.“Some of these big global moves do tend to pass through and prove temporary,” Ms. Forbes said. “The big question is: How long will these supply chain pressures last?”The United States Federal Reserve’s preferred price index rose 4.2 percent in July from the prior year, more than double the central bank’s 2 percent target, which it seeks to hit on average over time. In the eurozone, inflation recently accelerated to the highest level in about a decade. In Britain, Canada, New Zealand, South Korea and Australia, price gains have jumped well above the level central banks set as their goals.The big increases have come as supply chains have snarled around the world, adding to transportation costs and throwing the delicate balance of corporate globalization badly out of whack. Prices for airline tickets and hotel rooms dipped last year in the depths of the pandemic, and now they’re bouncing back to normal levels, making the numbers look higher than they would if compared with a less depressed base. Neither issue should last indefinitely.There is a danger that the global price surge could last longer — and become more country-specific — if workers in nations experiencing high inflation today bargain for wage increases and are more accepting of steadily higher prices. Bringing entrenched inflation back under control could require painful monetary policy responses, ones that would probably plunge national economies back into recession.Given those high stakes, the mere possibility of lasting inflation is ramping up pressure on central banks around the world to consider dialing back their still-substantial monetary policy support — even though many are not yet fully recovered and the pandemic has not ended.Economies around the world are growing quickly this year, partly as a result of enormous government spending that has pumped some $8.7 trillion into the advanced Group of 20 markets since January 2020 and central bank policies that have made money very cheap to borrow and spend. Central banks have been buying bonds to hold down longer-term interest rates and keeping short-term borrowing costs near or even below zero.It’s not just higher prices that advanced economies have in common. Complaints about labor shortages in some fields are also bubbling up around the world. Job vacancy rates have been climbing in Europe’s construction, leisure and hospitality, and information technology sectors. In Britain, firms widely complain of labor shortages, and a dearth of truck drivers caused partly by the nation’s exit from the European Union has disrupted supply chains and fueled shortages of milkshakes at McDonald’s and peri-peri chicken at Nando’s, a restaurant chain famous for the dish.A restaurant in London in June. Job vacancy rates have been climbing in Europe’s construction, leisure and hospitality, and information technology sectors.Andrew Testa for The New York TimesThose widespread trends highlight the oddities of the current economic moment. Commerce came to a sudden stop and then abruptly restarted when government relief payments padded consumers’ wallets, making people eager to spend even as manufacturers struggled to get back to full production and restaurants scrambled to staff back up.Still, some central bankers are growing nervous about their policies in countries where inflation is higher and labor supply issues are beginning to push up wages. They fret that a cocktail of low interest rates and big government bond buying will add fuel to the temporary-inflation fire, helping asset prices and consumer prices to remain higher. Prominent commentators, both in the media and in financial centers from the City of London to Wall Street, have added to the chorus arguing that central bankers are “behind the curve.”In Britain, Michael Saunders, a policymaker, already voted to end the central bank’s bond-buying program, predicting that some of the inflation spike would not be temporary. A few European central bankers have indicated that they should start debating slowing down their pandemic-era stimulus purchase program, and at least one has even suggested an immediate slowdown. Some U.S. officials, including the president of the Federal Reserve Bank of St. Louis, James Bullard, have said that today’s inflation might not fully fade and that policy ought to be poised to react.The extreme worriers are in the minority. Most policymakers in advanced economies are betting that price increases be temporary, and that inflation might even fade back to uncomfortably low levels over the longer term. From Ottawa to Frankfurt, they have warned against overreacting.“While the underlying global disinflationary factors are likely to evolve over time, there is little reason to think that they have suddenly reversed or abated,” Jerome H. Powell, the Fed chair, said during a recent speech. “It seems more likely that they will continue to weigh on inflation as the pandemic passes into history.”Before the pandemic, advanced economies had spent years trying to coax inflation higher, trying to stop an economically damaging downward spiral that had begun to take hold.Slow price gains may sound like good news to people buying gas, baguettes or hot dogs, but inflation counts into interest rates, so its downward trend in the 21st century has left less room for policymakers to cut rates to rescue the economy during times of trouble. That has helped to weaken recoveries, dragging inflation even lower and fueling a cycle of stagnation.Even amid the reopening, Japan — a notable outlier among advanced economies — continues to fight that long-run war, battling outright price declines. Coronavirus outbreaks have kept shoppers there at home, weighing on prices for Uniqlo attire and snacks alike. Persistent forces like population aging have also put a lid on demand and constrained companies’ ability to charge more.A shopping district in Tokyo last month. Coronavirus outbreaks have kept shoppers there at home.Franck Robichon/EPA, via ShutterstockOther economies are expected to return to their trends of slow growth and weak inflation as the pandemic shock fades and population aging becomes a more dominant force, said Jay Bryson, chief economist at Wells Fargo. “It’s like going up a step,” Mr. Bryson said. “Once you get to the next step, the rate of increase drops off. It’s a one-time price level adjustment because of the pandemic.”If inflation does fade as policymakers expect, the current burst could actually offer benefits: In the United States, it has helped to nudge inflation expectations back out of the dangerously low zone, to levels that are historically consistent with healthy price gains. It has proved harder for central bankers to move prices up than it is for them to cool them off, so that opportunistic inflation could help the Fed to nail its price goals in the longer run.But if it takes too long to go away, the consequences could be more serious.“If I’m wrong and inflation does get out of hand, that would lead to slower economic growth in a longer-run sense,” Mr. Bryson said, explaining that high inflation tends to bounce around a lot, making it tough for companies to plan and invest.But he said that even if higher prices lasted, they might settle in at 2.5 percent or 3 percent — which would not cause meaningful problems. By contrast, inflation in the United States popped to double digits during the Great Inflation of the 1970s.“I don’t think we’re talking about 1970s-style inflation,” agreed Mark Gertler, an economist at New York University. Policymakers around the world have committed to fighting inflation and will not allow it to run out of control. “Central banks can always make inflation transitory by raising interest rates enough.”Eshe Nelson More

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    What an Adult Tricycle Says About the World’s Bottleneck Problems

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    The supply-chain problems rocking companies may get worse heading into the holidays, as delays continue to snarl global trade and shipping prices jump even higher.Catrike has 500 of its three-wheeled bikes sitting in its workshop in Orlando, Fla., nearly ready to be sent to expectant dealers. The recumbent trikes have been waiting for months for rear derailleurs, a small but crucial part that is built in Taiwan.“We’re sitting on $2 million in inventory for one $30 part,” said Mark Egeland, the company’s general manager.The company’s problems offer a window into how supply-chain disruptions are rocking companies in the United States and around the world, pushing inflation higher, delaying deliveries and exacerbating economic uncertainty.It is unclear when the snarls will clear up — and it’s possible they will get worse before they get better. The holiday season is right around the corner, American companies are running light on inventory, and coronavirus outbreaks continue to shut factories around the world. Demand for goods remains strong as households use money saved during months stuck at home to buy athletic equipment, couches and clothing.That could keep pressure on global goods producers and the transportation routes that serve them even as consumers begin to redirect their spending back toward dinners out and theater tickets — a shift that many analysts had hoped would help supply chains return to normal.The critical questions for economic policymakers are how long the problems will last and how much they will feed into consumer prices, which have jumped sharply this year, both because of data quirks and bottlenecks. Federal Reserve officials regularly say they expect the faster price gains to prove “transitory,” but they are careful to stress that supply chains are a major source of lingering uncertainty, making it unclear how quickly rapid gains will fade.“I’m less in that ‘transitory’ camp,” said Phil Levy, the chief economist at Flexport, which tracks ocean shipments and helps importers plan so that their parts can get in by desired dates. “And more in the ‘we have reason to be concerned’ camp.”Container costs have rocketed up. Earlier this month, container shipping rates from China and East Asia to the United States’ East Coast climbed above $20,000, compared with about $4,000 a year ago, according to data from the freight-tracking firm Freightos. Those attractive high prices are encouraging ships to abandon other routes, causing the problem to spread. And shipping issues have been exacerbated by related imbalances: Boats are backing up at ports, and as demand for goods booms in the United States, empty shipping containers haven’t been able to get back to China fast enough.Chris Miller assembling a wheel for a Catrike. The company thinks that sorting out its supply issues could take 12 to 18 months.Octavio Jones for The New York TimesSome suppliers are eating higher production and transport costs. Full Speed Ahead, which produces crank sets for Catrike, has seen expenses increase as the demand for raw aluminum has risen. Shipping costs are also four to five times what they were a year ago, said Mark Vandermolen, the company’s managing director.Full Speed Ahead has passed “very little, if any at all,” of those cost increases on to customers, he said, and he hopes to “maintain pricing for as long as possible until it is no longer sustainable.”But not all of Catrike’s suppliers have absorbed climbing costs, and whether higher prices for components make for more expensive consumer products — actual inflation, as it is conventionally measured — depends on how companies like Catrike and the dealers they work through decide to adjust.Catrike raised prices by $200 early this year, its first adjustment since 2010, to cover costs. But the company is at a “sweet spot” where it’s outperforming competitors by offering affordable products, so it would prefer to leave prices steady now, Mr. Egeland said.He’s also cautious: Catrike hasn’t printed prices in its newest catalog, in case rising expenses make another increase necessary.The Fed — which has primary responsibility for keeping inflation steady — has made clear that it is content to look past a recent pop in inflation. If companies lift prices once or twice amid reopening challenges, the central bank can tolerate that as a one-off change.Officials would worry more if price increases dragged on for months or years. If that happens, consumers and businesses alike could come to expect consistently higher prices. They might demand higher pay, and a cycle of inflationary increases could take off.It will take time to know whether the bottlenecks will lead to more permanent damage. Supply chains are still badly snarled. The time it takes for parts from one of Catrike’s suppliers to arrive by sea in North America from a factory in Indonesia has jumped to three months, and sometimes it takes four — double what it took before. Estimates from Flexport confirm the problem is widespread along that shipping route. More

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    July C.P.I. Report: Inflation Rose Quickly Again

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    Consumer prices rose at a rapid clip again in July, gains that could be problematic for both Federal Reserve officials and the Biden White House.Prices increased by 5.4 percent last month compared with a year earlier, the Labor Department’s Consumer Price Index showed on Wednesday. The inflation measure rose 0.5 percent from June.The annual gain was slightly more than the 5.3 percent jump expected by economists, according to the median prediction of those surveyed by Bloomberg. The monthly gain matched the anticipated 0.5 percent increase.The monthly figure did represent a moderation in the pace of increase — the C.P.I. rose 0.9 percent in June from May — but inflation is still faster than is typical.Economists widely expected that price gains would pick up this year after slumping in 2020, but the extent of the jump has come as a surprise. Yearly price gains will almost surely moderate in the months ahead, as a data quirk that’s been helping exaggerate them fades. Monthly gains are also expected to continue cooling off as businesses find ways to cope with short-term disruptions to supply chains, which have pushed car prices sharply higher and led to much of the 2021 pop.But the key question for the Fed, and the White House, is just how quickly that will happen.For the Fed, which is charged with keeping price gains low and steady over time, temporary price jumps are tolerable — but persistent gains would be a problem. For the White House, climbing costs have become a political headache as Republicans use them to claim that the Biden administration is mismanaging the economy.Here are a few things to know about Wednesday’s data.The C.P.I. is not the Fed’s target measure. The central bank aims for 2 percent inflation on average over time, and it defines that goal using the Personal Consumption Expenditures index, which has also been up this year but not quite as sharply as the measure reported on Wednesday. But the C.P.I. is more timely, and its data feeds into the Fed’s metric, which makes it very closely watched.Last year’s shutdown is less of a factor. A big factor behind gains earlier this year is something called the base effect. Prices for airline tickets and hotel rooms dropped last year when the economy locked down, so when today’s prices are measured against those figures, the increase looks outsized. But the base effect is now fading, because prices turned a corner after May 2020 as the economy reopened.Fast inflation will become a problem if it lasts. The increases this year have been driven by pandemic reopenings, as supplies for goods and services — think used cars and restaurant meals — struggle to keep up with booming demand. Policymakers are willing to tolerate that pickup, temporarily. It is a weird period.“The question is more, what the inflation outlook is going to be into the next year, 2022, 2023?” Charles Evans, president of the Federal Reserve Bank of Chicago, said on a call with reporters on Tuesday.Fed officials are watching wage increases and inflation expectations for a sign of whether the current burst of reopening-driven inflation will linger. If pay takes off on a sustained basis, employers may find that they need to charge more to cover their expenses. Likewise, if consumers and businesses start to expect rapid price increases, they may be more willing to accept higher prices, setting off a self-fulfilling prophesy.For now, policymakers don’t expect that to happen.“My best estimate is that this is something that will pass,” Jerome H. Powell, the Fed chair, said in a recent news conference. “It’s really a shock to the economy that will pass through.”Ben Casselman More

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    The Fed’s Favorite Price Index Rose 4 Percent. What Comes Next?

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    The Federal Reserve’s inflation gauge popped in June from a year earlier. Economists think it will begin to moderate.The Federal Reserve’s preferred measure of inflation climbed by 4 percent in June compared with a year earlier, as a rebounding economy and strong demand for goods and services helped to push prices higher.The gains in the Personal Consumption Expenditures inflation index were the fastest since 2008, but in line with economists’ expectations. That rapid pace is not expected to last — and how much and how quickly it will fade is the economic question of the moment.Inflation has been surprisingly quick this year. Economists knew prices would post strong increases as they were measured against weak figures from 2020, when costs for many common purchases slumped. But the jump in recent months has been more intense than most were expecting.Prices for goods and services risePercent change in personal consumption expenditures index from prior year

    Source: Bureau of Economic AnalysisBy The New York TimesThat’s partly because supply bottlenecks have emerged across America’s reopening economy. Computer chip shortages pushed up the prices of electronics and delayed automobile production, causing used car prices to surge as people scrambled to find vehicles. Employers are struggling to hire back workers fast enough to meet returning demand, and wages and prices at restaurants and some other service providers have begun to move higher.Spending remains strong, Friday’s release also showed, climbing 1 percent in June compared with May. That was more than the 0.7 percent pop that economists in a Bloomberg survey had anticipated, and adjusted for inflation, it was still up 0.5 percent.Even as consumer demand holds up, June’s inflation data may be a high point in the price pressure saga. Last year’s low figures are becoming a less important factor, and many economists expect the rapid pace of price gains to begin to moderate in the coming months. A breakneck increase in used vehicle prices, which has been large enough to push overall prices higher, showed signs of moderating in July.Yet how quickly inflation will fall back to the Fed’s 2 percent target, which it tries to hit on average over time, is increasingly uncertain. It is hard to know how quickly the supply chain snarls that have complicated the price picture so far this year will clear up, or whether new ones will emerge. Climbing coronavirus cases around the world and the emergence of new variants, like Delta, could make for continued disturbances in global production and shipping routes, ones that will hit just in time for the back-to-school and the holiday shopping seasons.“The problem with the Delta variant is that the factors that are reducing the supply of goods and labor are elongated and continue,” said Constance L. Hunter, chief economist for the accounting firm KPMG. “This prolongs many of the components of the pandemic that were causing inflation.”Michael Patrick, a chef and restaurateur in Memphis, has had to raise pay for cooks and dishwashers to entice them to return to his upscale Southern food restaurant, Rizzo’s by Michael Patrick. His food costs have risen, too, because supply-chain issues have made it hard to get chicken and other key ingredients. So he has responded by raising menu prices twice in recent months. So far, his customers aren’t complaining.“People aren’t even blinking,” he said. “Not one person has said to me, ‘I can’t believe you raised your price on meatloaf two dollars.’”But Mr. Patrick is concerned about the effects of the Delta variant. Both he and his customers have learned to navigate pandemic life, he said, so he is confident he will be able to maintain sales. But if the resurgence of the virus leads to more shutdowns at meat-processing plants and other food producers, that could pose a bigger challenge.“Canola oil, beef, chicken — it’s all going up because the supplies just weren’t there,” he said. “Hopefully, at the end of the day, these variants don’t cause a lot of these companies to close their doors again.”It will matter for workers how quickly today’s robust price gains fade. Higher prices are taking a bite out of workers’ paychecks. Income after taxes fell 0.5 percent June, accounting for the impact of inflation. Over the past year, inflation has more than offset a modest rise in after-tax income.The data released Friday showed that core inflation, which strips out volatile food and fuel prices and can give a cleaner reading on price trends, picked up by 3.5 percent in June from a year earlier, for the highest annual reading in 30 years.The headline index climbed 0.5 percent from May to June, slightly less than the 0.6 percent that economists in a Bloomberg survey had expected.The fresh inflation data, released by the Commerce Department, came out later than a separate Labor Department inflation report. But they are closely watched because the Fed uses the Personal Consumption Expenditure index — which tracks things people consume but do not directly pay for, like medical care — to judge progress toward its inflation target.“The U.S. economy surprised us all,” James Bullard, president of the Federal Reserve Bank of St. Louis, said during a speech on Friday. “Quite a bit of inflation, much more than we have experienced historically. Of course, we do expect that to moderate, but I don’t think it’s going to moderate completely in 2022.”The Fed is willing to look through inflation it expects to be temporary, but it would be concerned if it saw rapid price gains turning into a stickier situation. Officials are especially watching trends like rising wages for a sense of whether price gains will last.Wages and salaries rose 0.9 percent in the second quarter, slightly slower than in the first three months of the year, according to separate data released Friday by the Labor Department. But pay is rising rapidly in some industries that are reopening as the pandemic ebbs: Wages in the leisure and hospitality sector rose 2.8 percent in the second quarter, and are up 6.1 percent over the past year.Service workers are getting raisesPercent change from prior quarter in private-sector wages and salaries

    Note: Data is seasonally adjustedSource: Bureau of Labor StatisticsBy The New York TimesShould pay increases turn into a cycle — one in which workers regularly ask for more money to cover rising costs, and employers give raises but pass the expense on — it could make for persistent inflation down the road. Fed officials generally do not think that is happening right now.“There is a form of wage inflation that can lead to price inflation, and we’re not seeing that right now,” Jerome H. Powell, the central bank’s chair, said at a news conference on Wednesday.Mr. Powell and many of his colleagues have maintained that price pressures should fade as the economy gets back to normal — Mr. Bullard is among the more concerned Fed officials when it comes to inflation. Many central bankers point out that even though inflation has come in hot in recent months, consumer expectations for future inflation remain at historically normal levels.White House economic officials have been stressing similar points, and arguing that high inflation is no reason to dial back their policy ambitions, which they say would not add to price pressures. The Biden administration is trying to shepherd a $1 trillion bipartisan infrastructure bill through Congress, one that includes $550 billion in new spending to make far-reaching investments in the nation’s transit and public works.But Republicans have seen rising inflation as a poignant way to criticize the Biden administration, which they say is mismanaging the economic reopening and allowing prices to gallop out of control.“There’s no question we have serious inflation right now,” Senator Patrick J. Toomey, a Republican from Pennsylvania, said in a CNN interview last week. “There is a question about how long it lasts. And I’m just worried that the risk is high that this is going to be with us for a while.”Even some central bankers are becoming wary as inflation rises.“The risk on inflation is that it does not fall back as rapidly as we had hoped, or that we get some other kind of shock that sends inflation even higher in 2022,” Mr. Bullard said on Friday. He argued that the central bank ought to start slowing down its big bond-buying campaign, so that it can finish that “taper” early next year and be prepared to lift interest rates as necessary.“It’s not that we’d have to lift off sooner,” he said. “But we’d want to have the option.” More

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    The Fed’s favorite price index rose 4 percent.

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    The Federal Reserve’s favorite inflation index climbed by 4 percent in June compared with a year earlier, as a rebounding economy and soaring demand for goods helped to push prices higher.The gains in the Personal Consumption Expenditures inflation index were the fastest since 2008, but in line with economists expectations. That rapid pace is not expected to last, but how much and how quickly it will fade is the economic question of the moment.Inflation has been surprisingly rapid this year. Economists knew prices would post strong increases as they were measured against weak figures from 2020, when costs for many common purchases slumped. But the jump has been more intense than most were expecting.That’s partly because supply bottlenecks have emerged across America’s reopening economy. Computer ship shortages pushed up the prices of electronics and delayed automobile production, causing used car prices to surge. Employers are struggling to hire back workers fast enough to meet returning demand, and prices for restaurant meals and some other services have begun to move higher.June’s personal consumption expenditure price data may be a high point in the inflationary saga. Last year’s low figures are fading from the data, and many economists expect the rapid pace of price gains to begin to moderate in the coming months.On a monthly basis, inflation climbed 0.5 percent from May to June, slightly less than the 0.6 percent economists in a Bloomberg survey had expected. The core inflation index, which strips out volatile food and fuel, climbed 3.5 percent over the past year.How quickly inflation will fall back to the Fed’s 2 percent target, which it tries to hit on average over time, is increasingly uncertain. It is hard to know how quickly the supply chain snarls that have complicated the price picture so far this year will clear up, or whether new ones will emerge. Climbing coronavirus cases around the world could make for continued disturbances in global production and shipping routes, ones that will hit just in time for back-to-school and the holiday shopping season. More

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    Inflation Has Arrived, but Washington Isn’t Racing to Limit Price Pops

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    Policymakers, now more attuned to the costs of choking off growth early, are sticking by a patient approach as prices rise.Inflation has long been the boogeyman haunting the nightmares of economic policymakers from both parties — and controlling it has been a top economic priority. But as the economy reopens from pandemic shutdowns and prices spike, it is becoming clear just how much that conventional wisdom has shifted in recent years.After three decades of relative price stability and a long stretch of weak price gains, many economists and lawmakers had in recent years come to believe that trying too hard to avoid overheating the economy created its own risk by prematurely cooling growth and leaving workers on the sidelines.The tools that policymakers used to prevent overheating — raising interest rates and reining in government spending — also contributed to less hiring and slower wage growth. Policymakers have paid increasing attention to those trade-offs, especially as chronically slow price gains across the globe made government efforts to control inflation seem somewhere between futile and self-defeating.That view has remained mostly intact at the Federal Reserve and the White House even as prices pop, virus variants threaten to perpetuate supply-chain bottlenecks and some price increases, like rising rents, create the risk that high inflation might last for a while.The Biden administration is emphasizing the benefits of the current moment, which include higher wages and more bargaining power for workers, as it insists that inflation will fade over time. The Fed, which meets this week, is openly nervous about rising prices, but it isn’t doing anything abrupt to counteract them. It says it needs to weigh the risk of inflation against the threat of slowing a labor market that is still missing nearly seven million jobs compared with prepandemic levels.Republicans are condemning rising prices, warning that the administration needs to rein in its spending plans and that the Fed should withdraw support. Even some left-leaning economists have warned that things could get out of control and that central bank officials need to be on watch.Here is a snapshot of what is happening with inflation, including the risks, the rewards and how policymakers are thinking through a strange economic moment.Prices are up this year, and pretty markedly.Inflation is up across a variety of measures, and by significantly more than economists predicted earlier this year.The Consumer Price Index, a Labor Department gauge of how much a basket of goods and services costs to buy, rose 5.4 percent in the year through June. The Fed prefers a separate measure, the Personal Consumption Expenditures index. That gauge tracks both out-of-pocket expenses and the cost of things people consume but don’t directly pay for, like medical care. It climbed 3.9 percent through May.Prices have risen by more than Fed officials expected, based on both their public statements and their economic projections this year.Why the big jump? Some of it owes to temporary data quirks, which were expected to push inflation higher this year. Part of it has come as prices for airline tickets, hotel rooms and other pandemic-affected purchases rebound from last year, also as anticipated. But the surprisingly large part of the increase has come from a surge in consumer demand that is straining delivery routes and outstripping available supply for electronics, housing and laundry machines.That portion of the inflation is more tied to government policies, which put money into consumers’ pockets — and its future trajectory is a lot less predictable. Economists think the bottlenecks will fade, but by how much and how long it will take is uncertain.Those price increases could have a downside.Whether today’s inflation matters and warrants a response will depend on several factors.If, as the White House predicts, quick price gains fade as the economy returns to normal, they shouldn’t be terribly problematic. Households are likely to have to spend a little bit more on some goods and services but may also find that they are earning more. Workers are now seeing decent wage gains, though not quite enough to outpace price gains, and the labor market is expected to continue strengthening as inflation fades.The biggest price gains have also been concentrated in just a few categories, like used cars. Most families do not buy automobiles that often, so the hit from higher costs will not be as salient for consumers as an across-the-board rapid rise in prices for everything consumers buy, like clothing and milk.But if consumers and businesses come to expect higher prices and start accepting bigger price tags and demanding higher wages, that could broaden inflation and keep it elevated. That would be a problem. Rapid inflation makes life hard for people who live on savings, like retirees. If it outstrips pay gains, it can erode a consumer’s ability to buy goods and services. And if inflation becomes hard to predict, as it did in the 1970s and 1980s, it makes planning for the future hard for businesses and households.There are risks that inflation could take time to get back to normal.There are real reasons to worry that inflation could stick around. Supply-chain snarls are expected to fade with time, but new Covid-19 variants and renewed lockdowns in some countries could keep global trade chains from getting back to normal. That could keep prices for goods elevated. (On the flip side, Jason Furman at Harvard points out that renewed lockdowns would also probably drag down consumer demand, which could lead to softer price pressures.)There are other hot inflation risks. Wages are rising, which might feed into faster prices as employers try to cover costs. Rents — which were depressed — are accelerating, potentially a stickier source of inflationary pressure.If inflation becomes pernicious, the Fed has tools to contain it. The central bank is already coming up with a plan to slow its big bond purchases, which keep longer-term borrowing cheap and lift markets. It could also raise its main interest rate, which would trickle through the economy to slow lending and spending.“One way or another, we’re not going to be going into a period of high inflation for a long period of time, because, of course, we have tools to address that,” Jerome H. Powell, the Fed chair, testified this month. “But we don’t want to use them in a way that is unnecessary, or that interrupts the rebound of the economy.”A job fair in St. Louis last month. The Fed is nervous about rising prices, but it says it also needs to weigh the risk of slowing a labor market still missing seven million workers.Whitney Curtis for The New York TimesBut there are also real risks to premature action.As Mr. Powell alluded to, policymakers do not want to move too hastily in response to the recent data. Many officials argue that it does not make sense to react to what is expected to be a short-lived price pickup by dialing back fiscal ambitions or weakening monetary support — policy changes that would reduce demand and lead to slower hiring down the road.Should the Fed pull back support for the economy before many of the 6.8 million jobs that have gone missing since the start of the pandemic return, it could lead to a painful situation in which workers end up stuck out of work.That would cost families paychecks, hurt the country’s potential for growth and tip the economic scales toward employers, who benefit when many available workers are competing for jobs.For decades, “the sensible adult consensus — that the most important thing was to protect against inflation — had a huge cost, and that cost was wages stagnating,” said Benjamin Dulchin, director of the organizing group Fed Up. “The Fed can err on the side of corporate interests and keeping wages lower, or it can err on the side of workers’ interests.”Today’s inflation could offer benefits.Inflation does have some winners. People who owe debts find that they are easier to pay off, and middle-class households who own houses may find that their values appreciate. Research has suggested that inflation in advanced economies can shrink inequality, for instance.But that isn’t even the argument the Fed and the White House are making: They simply do not expect the higher prices to last forever, and they think the short-term costs are worth the long-term benefits of helping the economy through a tough period.Some Democrats think that voracious hiring bolstered by government spending and central bank support will give workers the power to bargain for higher wages — an ability that might last beyond the inflationary phase. And they have been trying to foster a swift recovery from the pandemic downturn, getting people back into jobs and businesses back into full swing quickly.Officials are being patient, even as inflation surprises them.Government officials are setting economic policy today with an eye on the last battle. After the deep 2007-9 recession, the government cut back on spending early and monetary policymakers lifted interest rates before price gains had returned to their 2 percent annual inflation goal. Price gains proceeded to get stuck below that target, and the labor market recovery may have taken longer than it needed to, since the economy had less support.As that episode underlined, slow-moving global trends — including aging demographics and free trade — seem to keep a lid on price gains these days. In Japan and in Europe, policymakers have spent years battling to coax inflation higher. They are worried in part by the looming threat of deflation, which discourages consumption and crushes debtors, who find their pay stagnating or declining as their debt loads remain unchanged.America’s current bout of price pressures actually seems to be helping to guide consumer expectations, which had been slipping lower, back into the comfort zone.And a few heady inflation numbers are a good problem to have, if you ask Kenneth Rogoff, a Harvard economist. The globe just experienced a devastating pandemic that was expected to wreck the economy.“In the current situation, the fact that the economy is booming and they didn’t quite plan for it is still a blessing,” he said. “It’s a rich man’s problem that we’re getting inflation.” More

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    What to Know About Gas Prices

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    What to Know About Gas PricesCoral Murphy-MarcosReporting on the economyGas prices often peak in the summer as Americans plan road trips and outdoor holiday activities.The rise in gas prices has also comes as oil prices climbed steadily. Crude oil rose to its highest level in more than three years earlier this month, and is currently trading for about $70 a barrel.Goldman Sachs forecasts that oil prices could reach $80 a barrel this summer. Other analysts forecast a barrel could reach $100 in the coming years. More

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    in Economy

    Federal Reserve Chair to Testify Before Congress

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    When Jerome H. Powell, the Federal Reserve chair, appears before the Senate Banking Committee on Thursday, he will be testifying at a fraught moment both politically and economically, given the recent rise in inflation.The Consumer Price Index jumped 5.4 percent in June from a year earlier, the biggest increase since 2008 and a larger move than economists had expected. Price pressures appear poised to last longer than policymakers at the White House or Fed anticipated.In testimony on Wednesday before the House Financial Services Committee, Mr. Powell attributed rapid price gains to factors tied to the economy’s reopening from the pandemic, and indicated in response to questioning that Fed officials expected inflation to begin calming in six months or so.He acknowledged that “the incoming inflation data have been higher than expected and hoped for,” but he said the gains were coming from a “small group” of goods and services directly tied to reopening.For now, he voiced comfort with the central bank’s relatively patient policy path even in light of the hotter-than-expected price data. He said that the labor market was improving but that “there is still a long way to go.”He also said the Fed’s goal of achieving “substantial further progress” toward its economic goals before taking the first steps toward a more normal policy setting “is still a ways off.” More