On March 21, Federal Reserve Chairman Jerome Powell gave a lecture titled “Restoring Price Stability” at the 38th Annual Economic Policy Conference National Association for Business Economics in Washington, D.C.
On the topic of inflation, foremost in the minds of most Americans, Powell admitted he and his colleagues grossly underestimated the tidal wave of rising prices that has produced the highest rate of inflation in 40 years. According to Powell, “The inflation outlook had deteriorated significantly this year even before Russia’s invasion of Ukraine.”
Apparently, Powell did not receive the Biden administration’s “#Putin’s Price Hike” memo.
Powell continued, “The rise in inflation has been much greater and more persistent than forecasters generally expected. For example, at the time of our June 2021 meeting, every Federal Open Market Committee participant and all but one of 35 submissions in the Survey of Professional Forecasters predicted that 2021 inflation would be below 4%. Inflation came in at 5.5%.”
Then came the really bad news.
“The risk is rising that an extended period of high inflation could push longer-term expectations uncomfortably higher,” Powell said.
In other words, if you thought 7.9% inflation was bad, you ain’t seen nothing yet.
The latest Producer Price Index report from the Bureau of Labor Statistics, released on March 15, showed “prices for final demand goods jumped 2.4% in February, the largest advance since data were first calculated in December 2009.” Even more concerning, the PPI report found “final demand prices moved up 10% for the 12 months ended in February.”
This terrible PPI report is just the tip of the inflation iceberg.
In recent weeks, the prices of several staple crops, such as corn and wheat, have risen by as much as 30%. And since these staple crops are integral to the manufacturing of all sorts of food (and other) products, it is well within reason to speculate prices at the grocery store, which are already on the high side, will continue to increase.
Most concerning of all is the outlook for the price of energy. Over the past year, the domestic price of energy is up a whopping 25.6%. As of this writing, the price of a barrel of oil is hovering near $110. Because energy is the lifeblood of modern economies, we can surely expect that the sudden rise in energy will cascade throughout the economy.
Put simply, things are likely to get worse before they get better.
Chris Talgo ([email protected]) is the senior editor at The Heartland Institute.
