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Record high inflation rate in U.S. indicates economy is "overheated," economist says - YouTube
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the labor department says inflation in
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the u.s jumped 7 between december 2020
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and december 2021. that's the biggest
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increase since 1982.
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price increases for used cars and
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housing played a huge drive role in
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driving the surge people are also paying
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more for food clothing and furniture
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however energy and gas prices did see a
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decline core inflation which excludes
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food and energy jumped 5.5 that's the
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largest 12-month increase since february
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1991. for more on this i want to bring
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in peter maurici he's an economist and
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emeritus professor at the university of
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maryland peter thank you for joining us
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first of all what is this data from the
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labor department say about the current
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state of our nation's economy
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well then it's overheated
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we really have more demand than we have
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supply for two reasons we still have a
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great deal of stimulus money in the
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hands of consumers about two and a half
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trillion dollars ending in businesses
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three trillion dollars that's not yet
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spent you know checks that went in the
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mail
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they're in their bank accounts and the
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other thing is what americans buy has
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changed so whereas they're not buying
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sandwiches downtown because they're not
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commuting they're buying more goods to
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make their homes more comfortable and
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they're buying homes and putting on
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additions further from the city these
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things stress the system and our
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capacity to supply it's just not just
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container ships backed up in long beach
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so i mean one thing as you mentioned is
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the stimulus payment what else is
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causing this spike in inflation and how
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are these prices increasing every day
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household items or increasing the price
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in them that we buy
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well two things about everyday items is
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they are significantly more expensive
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and in some cases you can't get them you
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know i uh
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eat pepperidge from white bread my wife
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hasn't been able to find it in the
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stores for two weeks
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it's little things like that uh we we
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pop corn every night one week we
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couldn't find popcorn if you can believe
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that these are not things that are
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reported they're made right here
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part of that is the shift from people
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eating in restaurants you know eating it
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eating at home in the different supply
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chains involved
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but another part of it frankly is that
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you notice the stock market's doing
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pretty well
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corporate profits have done well in all
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this because they've raised prices and
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they've paid more for wages but then
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raise prices more than wages and most
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folks are really behind when it comes to
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the the cost of living they've got we've
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gone backwards uh there was this notion
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uh you know among progressives that that
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somehow rather a bit more inflation
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would be good for people unfortunately
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we have more than a bit more we have a
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lot more
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that could potentially continue driving
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that wedge and and opening up the wealth
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gap
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federal reserve chair jerome powell on
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tuesday warned rising inflation could
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make it harder to fully restock restore
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the job market what why is that what
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does he mean what's the relationship
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between these two things
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well essentially the curb inflation you
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have to curb demand and that does make
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the labor market you know less a
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seller's market for workers
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we have never curbed an inflation of
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this magnitude without having a
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recession of some kind
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now sometimes it occurs naturally for
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example the korean war we had a big
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burst in flight prices because the
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government was buying a lot of stuff
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then when the war stopped the government
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stopped buying
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prices went down but so did employment
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we had a recession
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uh more recently paul volcker had a
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terrible time with inflation that was
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you know about 10 percent
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and he had to really jack interest rates
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up all the way causing two recessions
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back to back to bring that inflation
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under control which took several years
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we have never really
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broken the back of an inflation this
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strong without facing a recession
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you know the fed has said that it
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expects to increase to raise interest
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rates at least three times
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this year and some experts say
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potentially four times to ease inflation
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inflation
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what do you make of this strategy
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it's very timid
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uh to put it in perspective he's got
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seven percent inflation bull volcker had
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10.
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over nine months
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if we have four interest rate increases
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that's a one percentage point increase
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in the overnight bank lending rate and
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maybe a half a percentage point on the
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rate that people pay on cars and things
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and mortgages and things like that
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over the same nine month period when
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paul volcker hit the brakes he raised
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interest rates
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seven percentage points seven times as
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much
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and that didn't do the job the economy
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fell into a recession he eased up
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inflation started again and he took
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interest rates all the way to 17 in
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order to break the back
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this is a very very tepid response and
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it's largely in response to the
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political pressures it's going to be
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very interesting to hear what we
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what he has to say after his
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confirmation is completed because he is
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faced with some very nasty work to do
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in a perfect world i mean what solution
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do you think would be more helpful
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um there really isn't a perfect world
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unfortunately we printed a lot of money
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to get out of the pandemic recession and
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probably printed too much
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and i was reflecting on this with my
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wife this afternoon who edits all my
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columns and i said you know we can't lay
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this all on president biden
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after all we printed five trillion
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dollars worth of money
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we're close to that
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and
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not all of that money was spent you know
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for president biden some of it was
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friend for president trump if mr biden
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had done nothing on coming into the
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white house
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we'd still have about one trillion
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dollars left and unspent stimulus money
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out there so to say it's all on him but
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the reality is it's there and now it has
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to be sucked out of the system what the
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fed has to do is dramatically increase
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interest rates and start selling off the
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bonds on its balance sheet to suck money
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out of the system that's going to cause
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frankly a reduction in the demand for
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labor it may cause a recession it likely
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will actually but you know if we don't
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endure one now it's going to be much
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worse later because we're on our way to
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10 inflation if we don't do something
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about this
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now with those uh if if uh interest
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rates go up say four times or three
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times this year how long do you think it
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will take before inflation reaches its
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peak and finally starts to decline
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i don't have a good answer for that
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because we haven't been through a
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pandemic like this since the bubonic
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plague yeah uh you know not even the uh
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the the the spanish flu was quite like
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this because the government purposely
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shut down the economy so we really don't
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have you know any any historical basis
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the econometric models we have are
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constantly wrong they keep telling us
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inflation is going to revert back down
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to two percent
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my feeling is that
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if they keep going along as they have
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and we pass buildback better and that
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has to be financed
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that we could hit 10 inflation by the
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end of the biden administration or the
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end of the biden first term
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uh
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conversely if we do nothing further and
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we do raise interest rates no inflation
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will come down a bit but it won't come
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down to where we want it to be
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you know he could be facing re-election
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with four or five percent inflation and
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not much of a legislative track record
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all we want about the desirability of
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the things he wants to do
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but they will be paid for with inflation
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if we go ahead as planned
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well these are unprecedented times peter
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maurici thank you for joining us tonight
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it's been my pleasure
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