Data from the Bureau of Labor Statistics for February 2022 — which includes the start of the Ukraine invasion — shows that the CPI (Consumer Price Index) rose to 7.9 percent YoY, marking the fastest rate of inflation in the U.S. in 40 years, as The New York Times reports.
So, given the new data, what’s the outlook for inflation now?
Janet Yellen says another year of “uncomfortably high” inflation numbers is likely, but she isn't worried about a recession.
“I think there’s a lot of uncertainty that is related to what’s going on with Russia in Ukraine,” she said. “And I do think that it’s exacerbating inflation. I don’t want to make a prediction exactly as to what’s going to happen in the second half of the year. We’re likely to see another year in which 12-month inflation numbers remain very uncomfortably high.”
Yellen also referenced expectations that the Fed will raise interest rates to ease inflation. “They’ve indicated that they intend to take actions to bring inflation down, and I have confidence in their ability to make a meaningful difference going forward,” she said.
Other experts say inflation won’t be a “permanent part of our economy” and that wages are “going to catch up.”
In a discussion that The Brookings Institution hosted on Thursday, March 10, Hamilton Project director Wendy Edelberg explained that supply issues related to consumers’ “off-the-charts” demand of goods accounts for roughly two-thirds of the inflation spike in the last six months.
Assuming the pandemic wanes in the months ahead, Edelberg predicted that inflation will be more influenced by the service sector in the months ahead, as consumer demand shifts from goods to services.
“If the service sector sees a big burst of demand but can’t keep up there, that will be because they can’t find the workers, and they will pass on that wage pressure into prices,” she said.
Edelberg also said that inflation will one day subside. “The arc is I think going to follow consumer demand, and consumer demand is going to come down,” she reasoned. “And so I don’t see this just being a permanent part of our economy forevermore.”
Justin Wolfers, a professor of public policy at the University of Michigan, said in the Brookings conversation that wages are likely to catch up with inflation — at some point, at least. “It may not be very comforting for people to hear right now, that their cost of living is rising faster than their wages, but I think there’s good reason to be confident that wages are going to catch up,” he said. “The question is how long will that take.”