It is a number that is at a multidecade high. The consumer price index rose 7 percent in the last year. But this one number — one number worrying en

Why everything is so expensive

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2022-01-12 19:00:18

It is a number that is at a multidecade high. The consumer price index rose 7 percent in the last year. But this one number — one number worrying enough to cause the Federal Reserve to plan to hike interest rates over the next year in order to let some steam out of the economy — is a composite of an economy in an unprecedented flux as it still struggles with covid-19 and how governments, businesses and individuals respond to it.

While each item of the index — cars, homes, energy and so on — tells its own story, there is an overall picture: The economy is recovering far, far quicker than it typically does following a severe recession, but the growth is unbalanced, showing up in some places in high prices.

Inflation is just one piece of the overall puzzle. What really worries economists is not just inflation per se, but a situation, as in the 1970s, where prices are rising and the economy is otherwise stagnant, with little job growth or overall growth. This condition is called, naturally enough, “stagflation.”

There’s clear evidence that stagflation is not the direction in which the economy is headed. The unemployment rate is down to 3.9 percent, and overall output is easily above its pre-covid level. This is not quite down to that 3.5 percent unemployment rate, but it’s simply not the situation that the labor market is trending in the wrong direction.