“Do not panic about inflation in the United States”

«There is no need to enter punique for the inflationary process announced this week, “said Paul Krugman, Nobel Prize in Economics, in an opinion article in the newspaper The New York Times.

Krugman, an American academic, indicated that the “consumer price report on Wednesday, November 10, was ugly; inflation is being much higher than many, myself included, expected ”.

However, he indicated that “there is nothing to contradict the analysis of the Council of Economic Advisers (CEA) of the White House, on the contrary, the similarity with the inflation of the early postwar period seems stronger than ever. What we are experiencing now is much more like 1947 than 1979 ″.

On Wednesday’s price report, he pointed out that it was very similar to the classic story of inflation resulting from an overheated economy, in which too much money chases too few goods.

Earlier this year, the price increase had a narrow base, driven largely by food, energy, used cars and services, such as air Transport, who were recovering from the pandemic. That’s less true now: “It appears that demand is outpacing supply in much of the economy,” he added.

Remarked that “Real Gross Domestic Product, which is equivalent to real spending on goods and services produced in USA, it is still two percent below what we would have expected the capacity of the economy to be if the pandemic had not occurred ”.

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Krugman argued that consumers buy fewer services but more goods than before, which puts ports, trucks, warehouses and more to the test.

These supply chain problems they were compounded by the global shortage of semiconductor chips, coupled with the Great Resignation – that is, the reluctance of many workers to return to their old jobs. “So we are having a bout of inflation”, he pointed out.

What does history teach us about the current peak in inflation?

One of the lessons is that brief bouts of overheating do not necessarily lead to stagflation like that of the 1970s.

Analyzing the situation in the markets, the academic pointed out that investors expect a rapid rise in prices in the short term. But longer-term market inflation expectations remain stable.

Warned that rising inflation is no reason to cancel long-term investment plans contemplated by the government in its infrastructure and social spending law.

He underscored that people who make knee-jerk comparisons to the 1970s and scream about stagflation are looking at the wrong story. When you look at the correct story, you tell yourself not to panic.

* With information from Latin Press Agency


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“Do not panic about inflation in the United States”