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**JANUARY 12, 2022**

Kuttner on TAP

Reading the Inflation Numbers Wrong

Will the media and the Fed stampede the economy into 1970s-style
stagflation?

The latest inflation numbers, reporting that December prices increased

7 percent from a year ago, will add to the pressure on the Fed and on
Congress to hike interest rates and kill plans for increased public
investment. This reading of the numbers and the needed policy responses
is entirely perverse.

As we keep reporting
, most of the
inflation is the result of supply chain bottlenecks and the
opportunistic use of those bottlenecks by hyperconcentrated industries
to raise prices. Even Fed Chair Jerome Powell testified

yesterday that he expects inflation to subside later in 2022.

If we are ever to fix the supply chain mess, we need to bring home a lot
of industries. That will take the kind of public investment proposed in
Build Back Better, as well as re-regulation of predatory industries that
make up the links in the chain.

Take a close look at the sectors
where prices have
increased most. They are mostly the result either of purely temporary
supply bottlenecks (cars, semiconductors), or of opportunistic price
hikes (shipping, meat), or of manipulated supply and demand (oil). Only
a minority, such as lumber, conform to the standard story line of
increased demand raising prices.

And though most media accounts stressed the bad news, on a seasonally
adjusted basis prices increased just 0.5 percent in December, down from
0.8 percent in November.

The unwillingness of low-wage, frontline workers to work in hazardous
conditions for a pittance has raised labor costs, some of which have
been passed along in higher prices. But this is a long-overdue gain.

Higher wages are a problem only if you think that the worker earnings
that prevailed two years ago were acceptable. Cut corporate
concentration, stock buybacks, and the grotesque concentration of
wealth, and there will be more money to compensate workers without
raising consumer prices.

If policymakers follow the conventional wisdom, we could end up with a
variant of 1970s stagflation-higher unemployment and weaker economic
performance. That economy delivered the 1980 election to Ronald Reagan.

Biden has recovered his voice on the January 6 attempted coup and on the
need for scrapping the filibuster to deliver voting rights. He needs to
speak out more forcefully on what's really going on with the economy.

****

~ ROBERT KUTTNER

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**Robert Kuttner's latest book is**

The Stakes: 2020 and the Survival of American Democracy
.

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A community news service in New York's Hudson Valley is finding out
the hard way. BY WILL SOLOMON

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