The advantage of every official report on inflation is that it reminds us that even intelligent people are often confused – even if they are once familiar with economic thinking. I read this today The Wall Street Journal (“Inflation eased in April, but upward pressure remained,” May 11, 2022):
This dynamism is pushing wage gains – adding multiple pressures on inflation. Some employers are raising prices to offset higher labor costs. Strong wage growth and recruitment are putting more money in the pockets of Americans.
How can the reader untie this Gordian knot? Here is the obvious explanation: Inflation in the past has led to higher wages, which has led to higher inflation (more inflation) which, combined with higher consumer income due to higher wages, will lead to higher inflation. Why would the cycle not be repeated? How can inflation, once it starts, ever stop or even decrease? We are not told. But it is suggested that only the mysterious and powerful hand of the government can stop it. But even then, why didn’t the strong hand of the government stop or prevent inflation before it started?
The idea that inflation, or at least its stability, can only be caused by government money-making, if ever learned, seems to have been forgotten. John C. Frein’s figures below, reproduced from my previous post, may illustrate; The second image removes the two top outliers of the first. Money is the interrelationship between stocks (although an admittedly incomplete measure of money Supply) Interesting.