There was a lot of discussion of US inflation on Twitter last night, lead by comments from Paul Krugman. The argument can be summarised fairly simply.
It is that there is no underlying reason for inflation bar supply chain issues. The Bank of International Settlements provided data to support this.
Supply chain issues are very largely impacting durable goods. They are where prices are hiking, especially in the US as people react to shortages.
But shortages will not last. And people are simply deferring purchases as a result of their innate understanding that this is a temporary phenomenon.
The consequence is that as soon as supply chain issues are resolved prices of these goods will fall. Compared to now they will go into negative territory.
There is as a consequence deflationary pressure growing in the economy.
So, why it was asked make matters worse by tackling an inflation that might more than reverse, when any measure can only have a negative impact?
It is an argument with which I agree.
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Me too, although I probably have the answer to the final question. Interest rate hikes, like energy price hikes, operate to extract income from many millions of citizens, to benefit the finance sector by billions in the blink of an eye. Irresistible, surely! Surely also, members of the MPC and its equivalents elsewhere are paid lobbyists for just such an outcome, or am I in danger of becoming a conspiracy theorist?
Absolutely. We do not know how inflation will evolve…. but we DO know that rate hikes and austerity will destroy many lives. To act on interest rates now would a cruel folly. Sometimes “wait and see” really is best.
There was an article by Robert Reich , Bill Clintons former labor secretary entitled “The real reason for US inflation” that blamed corporate concentration/lack of competition and cited as example proctor and Gamble vs Kimberly Clarke as the only real competitors for many household goods like diapers who both have very healthy profits and are busy buying back their shares, same with PepsCo vs Coca Cola who also raised prices at about the same time; there are others Monsanto pretty much controls the seed market, Boeing planes,Big Pharma, Big Oil etc etc…while acknowledging that costs have indeed risen the lack of competition allows these massively profitable companies to raise prices with impunity just because they can.
I’ll say it again – someone please explain to me how an earth can you tackle inflation with inflation – because that is what you are doing when you put up interest rates (the cost of borrowing)?
Do we tackle bleeding with more bleeding?
It’s about time we questioned this sort of crap a lot more. These Neo-lib sacred cows need slaughtering wholesale.
The idea is to reduce demand amongst those whose capacity to spend is limited
It does not, of course, apply to the rich, which gain with increased income and already have relatively unconstrained spending
It is class warfare