The media is abuzz with talk of possible inflation due to the release of pent up demand now that the recovery is underway. Treasury Secretary Janet Yellen’s comments about a possible rise in interest rates has only added fuel to the fire of concerns about the economy overheating.
Here are some reasons we’re not completely convinced that rampant inflation is in the cards for the near term.
- Let’s not forget that much of this demand was funded by stimulus checks. When the stimulus checks stop, the demand stops.
- Also, the supply shortages of goods such as semiconductors has fueled these inflationary pressures. Like any supply shock, it will likely be temporary; once supply comes back, prices will return to pre-shock levels.
- Year on year comparisons for inflation and GDP growth are slightly misleading because last year at around this time, we were (for the most part) locked down.
For all these reasons, despite what the news and media portray, inflation is not as much of a medium term risk as is believed.
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