The inflation history many haven't seen
What's next after 7.5% inflation in January? Yahoo Finance's Andy Serwer brought back memories from my 20s and early 30s in a recent article. He noted two-thirds of Americans never lived with inflation.
Inflation developed in the 1970s reaching 12.2% in October 1974, peaking at 14.8% in March 1980, dropping to a 4-year LOW at 11.4% in February 1982.
His article attributed 1970s inflation to Great Society policies born in the 60s, the Vietnam War and oil shocks from an OPEC oil embargo in 1973 and an Iran-Iraq war, all fueling '70s spending and deficits.
So, what brought inflation under control? Federal Reserve Chairman Paul Volker raised interest rates with the prime rate hitting 20% in June 1980.
What is causing inflation now? He pointed to supply shortages from COVID, trillion-dollar U.S. spending programs, Federal Reserve policies artificially seeking low interest rates as prices rose last year and globalism, which optimized cheap production of goods, declining.
Future inflation will be difficult even with COVID supply issues dissipating. The American Rescue Plan and the Infrastructure Act will perpetuate deficit spending into 2024 through 2026.
Fiscally responsible politicians who balance tax and spend are needed to facilitate personal and business growth, efficient regulatory oversight and prudent social spending.
Federal Reserve actions buying debt through February and not hiking rates till March demonstrates a politicized Fed favoring full employment over inflation. Will the Fed increase rates fast enough so inflation plateaus at 7.5% and declines below 5% before 2023 without triggering a recession in 2023?
Will nationalism grow versus globalism? Can businesses control labor costs with technology? Will the regulatory public sector accommodate business for efficient U.S. production? Will consumers continue to pursue cheap foreign products or buy American?
Will younger Americans experience 10% or more inflation? Will history repeat?
Mike Tennis
Sleepy Hollow