Inflation Q & A: Economist Joel Naroff on the Inflation Threat | Business


Washington (AP) — Inflation, which has been a no-show for decades, suddenly seems to be happening here and there. And there is growing concern.

Consumer prices in April rose the most in more than a decade, with the cost of goods and services such as food, used cars, airline tickets and furniture skyrocketing. Rising prices have raised concerns that accelerated economic recovery may lead to runaway inflation for the first time in a generation.

The Associated Press recently spoke with Joel Naroff, President and Chief Economist of Naroff Economics LLC. The interview was edited for clarity and length.

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Q: Are there any signs of rising inflation after many years of low inflation?

A: There is no doubt that inflationary pressures are rising, and they are rising fairly rapidly. We have made a major intervention in the economy by the US government. It caused a surge in demand as well as problems in the global supply chain.

Q: Chair Jerome Powell and other Fed officials argue that price increases are temporary and do not indicate that inflation will be a problem. What do you think?

A: I think there is a high risk of long-term inflation rather than a temporary period. The Federal Reserve Board expects the risk to diminish as government support ends. But if President Joe Biden’s infrastructure and family programs pass, the Fed may be in trouble.

Q: The Fed says it has the tools to deal with inflation.

A: They can raise the price at any time. But they also created an economy where the Fed is expected to maintain very low interest rates for a very long period of time.

Q: The Fed does not promise to raise interest rates preemptively to combat inflation, but wait longer to further lower unemployment and temporarily raise inflation above its target of 2%. It’s like a new era that I’m willing to do.

A: There was a saying that when we waited for the Fed to see the whites of inflation, we waited too long. Now we have a federal government that is willing to be overtaken by inflation before it begins to fire.

Q: Where are consumers likely to notice higher prices?

A: Prices will go up everywhere. You can see it in restaurants, amusement parks and cinemas. They are all going to raise their price. The cost of building a new home is very high. It’s all, not just timber.

Q: Do you pay special attention to investors?

A: The biggest problem I see is that we don’t know what will happen to the economy after the government stops supporting households and businesses. Investors should be asking that question now.

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