U.S. Inflation hit a 40-year record in March, with the Consumer Price Index up by 8.5 percent from 12 months earlier. The cost of rising prices is significant for Americans: an extra $5,200 for the median household this year compared to last for the same goods and services. Inflation is having political effects, too: Perceptions of a weak economy are contributing to President Joe Biden’s low approval ratings, increasing the chances of major losses for the Democratic Party in November’s U.S. midterm elections. Many economists predicted that steep inflation was only temporary—or in the language of the U.S. Federal Reserve, “transitory.” Of course, they wouldn’t have foreseen the war in Ukraine, which has pushed up prices for gasoline and energy, but the costs of food and services are also continuing to climb. What’s going on?

Zachary Carter is an American journalist and the author of the 2021 Hillman Prize–winning book about John Maynard Keynes and Keynesian economics, The Price of Peace. According to Carter, Russia’s invasion of Ukraine is behind a lot of the elevated inflation these days, but the pandemic continues to drive high rates, as well, with factories in China shutting down in the latest wave of Covid infections there. In the U.S., consumers are still spending money at the same historically high levels as last year, despite rising prices. As Carter sees it, this paradox illustrates the difficulty of understanding inflation: It varies between countries, within countries, and person by person, depending on what they purchase. People tend to respond differently to price hikes than they do to other negative economic data. And their concerns about today’s unprecedented inflation numbers reflect not just anxiety about them directly but also a more general gloominess about the pandemic. Meanwhile, Carter says, Covid-19 has forced dramatic shifts in how economists and the general public think about inflation: All the old models have failed to explain what’s happening, and new ideas are just beginning to take shape.


Michael Bluhm: How has the war affected inflation?

Zachary Carter: The most obvious problem for the global economy now is the disruption of raw materials from Russia and, to a lesser extent, Ukraine. Ukraine’s biggest effect is on wheat prices, because much of the developing world relies on Ukraine for relatively low-cost wheat.

Russia’s supplies of oil and gas are extremely prominent—and an important issue politically in the United States. But Russia also produces an enormous amount of base metals, like nickel and iron. These are necessary to make nitrogen-based fertilizer, so it’s harder and more expensive to get the things that make food grow at a relatively efficient clip.

Overwhelmingly, the inflation story resulting from the war is about energy, heavy-metal production, and food—all of that’s getting more expensive.

Bluhm: The figure of 8.5 percent for March inflation is a striking number. How much of that is on account of the war?

Carter: The 8.5-percent figure for March is curious. The headline number is frightening because it’s the highest in decades, but the prices of goods are less frightening. It’s unclear how much of this is from the war or other causes, though energy prices are a big part of it.

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