The Cost of Living

An unexpected jump in consumer prices in June triggered alarm that the United States might be headed into a period of destructive inflation. JPMorgan Chase CEO Jamie Dimon warned that the bump in inflation might not be temporary, while conservative commentators and Republican politicians argued that the U.S. was entering an inflationary spiral. As the Consumer Price Index rose by 0.9 percent from May to June, roughly 85 percent of U.S. poll respondents said they were somewhat concerned about inflation. If that pace continues, inflation could approach 10 percent for the year, forcing the U.S. Federal Reserve to raise interest rates—and imperiling President Joe Biden’s ambitious and expensive policy agenda. How worrying is recent inflation?

Zachary Carter is an American journalist and the author of The Price of Peace, about John Maynard Keynes and Keynesian economics, recognized with the 2021 Hillman Prize for Book Journalism. To Carter, the June numbers are no reason to get excited. More than two-thirds of the increase was caused by higher prices for cars and the leisure-and-hospitality industry, neither of which presents a long-term threat to overall inflation. On the contrary, Carter argues, U.S. workers’ wages are rising, and many indicators signal a strong economic recovery. As he sees it, a transformative shift is taking place in how economic moderates such as Biden and Federal Reserve Chair Jay Powell think about inflation. Rather than seeing it as the leading threat to the economy, they hold full employment as their new top priority, and they’re willing to tolerate moderate inflation to achieve it.

Michael Bluhm: Why did U.S. consumer prices rise so sharply in June?

Zachary Carter: The shortest of short answers is used cars. The one-month increase was 0.9 percent. Before the crisis, the U.S. Federal Reserve was targeting 2 percent for the entire year, so to have almost half that in a single month is a big jump.

But if you look at the components, some prices go up, some go down. The prices that went up a lot in June were car prices, for used cars in particular—they were up 10.5 percent. It’s the biggest jump since 1953, on a one-month basis.

If you did have to buy a car last month, you had a bad, bad month. Transportation is typically the second- or third-largest household expense for most families. But if you didn’t have to buy a car last month—which is the situation for the vast majority of families—inflation really wasn’t that much of a factor for you.