Maybe Inflation Will Stay This High Forever

Photo: David Ryder/Bloomberg via Getty Images

Every month, the federal government puts out a new report on inflation. Every month, it gets worse.

The Consumer Price Index rose 7.9 percent in February, a new 40-year record, smashing the previous high for the period set in January. The rise in prices was driven by a surge in gas, food, and shelter costs — all the things that had been pushing up inflation during the previous six or so months — but the timing of this report has an especially ominous feel to it. It largely doesn’t capture the spike in prices since the start of Russia’s invasion of Ukraine on February 24, which have sent the cost of gas to new unadjusted all-time highs. It’s also the last report before the Federal Reserve decides on how it’s going to set monetary policy going forward to keep inflation lower — just as the number of people switching jobs is falling, a sign that raging economic growth could be slowing.

Rising prices have been an overarching reality of the Biden administration, but what stands out about the February CPI report is how inflation keeps changing shape as it goes on. Last spring — back when economists largely thought that the then-modest rise in prices was “transitory” — the spike was attributed to a jump in vehicle costs, thanks to a chip shortage and high demand for renting cars. Annoying, but not dire. Since then, though, inflation has been wheedling its way into the things that people need every day, pushing up the costs of eating, moving, and living in ways that haven’t been seen since Ronald Reagan was president.

Economists like to blame the rise in prices on the snarls in the global supply chain, or the extra money that came into people’s pockets from Biden’s last round of stimulus, but now that the rise in inflation is nearing its first birthday and getting worse, both those explanations seem weak. Whatever extra money that people got in Biden Bucks last spring has long been spent, and if the Child Tax Credit was as much of an inflationary force as some Republicans had made it out to be, we would have seen prices edge down fast this year, after the benefits expired at the end of 2021. And the discussions around the supply chain can sometimes obscure what it really is — transportation and shipping — as well as the heart of the problem, which is that there aren’t enough people to take the supply chain jobs that keep goods flowing from manufacturers to consumers. Why would they, if there are still more than 11 million jobs left unfilled?

The February CPI report shows that the explanation for the global rise in prices is much simpler than all that, and it boils down to one three-letter word: gas. The commodity is in everything. You need food grown out of the ground? Well, that requires fertilizer — of which petroleum byproducts can be a major component — and that’s been hitting all-time highs. Rent is getting more expensive? Landlords who cover heat — which is the majority in New York City — are passing along those costs to tenants. The costs of getting trucks and boats to send stuff around the world are rising along with prices at the gas pump. The Bureau of Labor Statistics has a neat little chart here that shows just how disproportionate the rise in the price of gas is compared to everything else. The reality is that, if you’re looking for inflation, it’s in the gas.

The bad news is that Russia’s war in Ukraine is only going to make prices spike higher. “Prior to the war, Russia was the world’s second-largest producer of oil and natural gas, and Russia and Ukraine collectively exported a quarter of the world’s internationally traded wheat,” Bill Adams, the chief economist for Comerica Bank, said in a report. “Disruptions to supplies of those commodities will cause a big hit to U.S. consumer spending power at a time when inflation was already historically high.” While the U.S. doesn’t get much of its gas or food from Russia or Ukraine, they produce so many of the commodities that fuel the global economy that, by reducing the total supply of Russian energy or Ukrainian wheat, it’s near-impossible for producers and manufacturers to insulate themselves from inflation, no matter how far away they are.

Economists are now predicting that inflation will stay high through the spring, if not for years to come. With the Fed set to cool the economy next month, as Chair Jerome Powell has said he is likely to do, the U.S. economy is looking at a rough future, with no obvious solutions in sight.

Maybe Inflation Will Stay This High Forever