PEAK-A-BOO — To peak, or not to peak? For economists looking at inflation, that is the question. This week’s 40-year-high inflation rate led to a larger conversation among economic gurus: Will the price increases for gas, food and other essential items speed up — surpassing the already staggering 8.5 percent — or slow down in the coming months? Nightly asked some of our economic experts if they believe inflation peaked this month, and how the federal government should incorporate this assessment into its policy response over the next year. These answers have been edited. “It is very likely that the inflation rate will come down from 8.5 percent, if not next month, then in the month or two that follows. It is also very likely that inflation will stay very high. There is very little the federal government can do over the next six months, but it should continue trying to do everything possible to improve supply chains while not adding fuel to the fire with steps like student loan interest moratoriums or gas tax holidays. Ultimately, the Fed will need to get this under control and it may take a lot more action from them than they are currently contemplating.” — Jason Furman, economic policy professor at Harvard and chair of the Council of Economic Advisers under President Barack Obama from 2013 to 2017 “I think this depends partly on one’s time horizon. Inflation eventually eased after the 1973-74 oil shock and recession, but surged even higher just a few years later with the 1979 oil shock, as inflation expectations were by then fully unanchored. “I do think inflation will come down from last month’s 8.5 percent rate in the coming months. So in that sense, we can say that inflation has probably peaked for the near term. But it will not return to 2 percent without substantial tightening by the Federal Reserve. Moreover, we need to exercise caution in interpreting declining inflation numbers in 2022, because just as rising inflation in early-mid 2021 was overstated by base effects and transitory factors like used cars, in 2022 inflation will actually be understated by base effects and transitory factors like used cars. For example, excluding used cars, core inflation last month would have risen 0.5 percent month-over-month, versus the official print of 0.3 percent. “So with inflationary pressure likely to remain elevated over the next year, I think fiscal restraint and further monetary policy tightening will be needed to not only bring inflation down, but also to re-anchor inflation expectations.” — Tyler Goodspeed, Kleinheinz Fellow at the Hoover Institution at Stanford University and acting chair and vice chair of the Council of Economic Advisers under President Donald Trump from 2020 to 2021 “Even if there are some encouraging signs that core inflation will ease in the months to come, the deeply harmful repercussions of elevated prices for families around the country are likely to persist beyond any peak in the data. “Corporate executives have been using recent crises as a cover to jack up prices andpad their profits. And there’s no end in sight as long as policymakers let outsized corporate power in our economy go unchecked. “Our economy is characterized by extreme concentration and market power. As a result, corporate executives can raise prices without seeing consumer demand drop. Deregulation has also allowed these corporate behemoths to create a brittle supply chain built to maximize short-term returns for their investors. “Every crime needs motive and opportunity. Corporations have always had the motive to maximize their profit margins, but the cover of inflation and broken supply chains have created an opportunity to engage in extractive pricing — and investors are egging them on . Unfortunately, the inflation smokescreen is likely to hang around after CPI peaks. “Policymakers should tax excess profits to encourage productive investment, pursue a federal price gouging standard to protect consumers, and make long-overdue investments in our supply chain. Regulators should also enforce existing laws to make markets more competitive and prevent collusion and price-fixing.” — Rakeen Mabud, chief economist and managing director of policy and research, Groundwork Collaborative “Unfortunately, we may have yet to see the peak of inflation. This is bad news for the nearly 100 million people in America living in or near poverty, who must pay an even greater share of their income to meet basic needs. “An appropriate federal policy response to these price increases must look well beyond interest rate increases alone. Not only do interest rate increases hit the 100 million the hardest, they do not address an emerging driver of inflation: energy prices. “We must be clear that contractionary monetary policy has a disproportionate impact on workers who earn the lowest wages. Any decrease in demand for labor will result in an increase in unemployment and exert downward pressure on wages — a burden that is disproportionately borne by people of color. Further, a more aggressive schedule of interest rate increases — as some have proposed — risks tipping our economy into recession. Here again, the structural inequities of our economy mean the burden of a potential recession will be borne disproportionately by the 100 million. “Interest rate increases will do nothing to address the war-induced spike in energy prices. While the annual inflation rate currently sits at 8.5 percent, energy prices have soared 32 percent, nearly four times as fast. Notably, gasoline alone accounted for more than half of all price increases in March. “While the politics of inflation may reduce the appetite for federal spending, this is precisely the moment to make public investments to accelerate the transition off fossil fuels, double down on low-cost renewables, and deliver long-term savings for the American people.” — Demond Drummer, managing director, equitable economy at PolicyLink Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight’s author at mward@politico.com, or on Twitter at @MyahWard.
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