First, initial weekly jobless claims barely budged from last week, dropping only 9,000. That leaves the number still above the pre-pandemic high, but another set of numbers are more worrisome:

In the week ending June 5, the advance figure for seasonally adjusted initial claims was 376,000, a decrease of 9,000 from the previous week’s unrevised level of 385,000. This is the lowest level for initial claims since March 14, 2020 when it was 256,000. The 4-week moving average was 402,500, a decrease of 25,500 from the previous week’s unrevised average of 428,000. This is the lowest level for this average since March 14, 2020 when it was 225,500.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending May 29, a decrease of 0.2 percentage point from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending May 29 was 3,499,000, a decrease of 258,000 from the previous week’s revised level. This is the lowest level for insured unemployment since March 21, 2020 when it was 3,094,000. The previous week’s level was revised down by 14,000 from 3,771,000 to 3,757,000. The 4-week moving average was 3,651,250, a decrease of 35,250 from the previous week’s revised average. This is the lowest level for this average since March 28, 2020 when it was 3,611,750. The previous week’s average was revised down by 1,250 from 3,687,750 to 3,686,500.

Before the pandemic, the average of this metric landed more in the low 200s than high 300s. This level isn’t unreasonable as we come off of the shocking highs of the past year, but it’s not coming down as fast as one would expect with over nine million job openings in the US at the moment. Plus, we already have a massive overhang in the labor markets thanks to the continuing pandemic-related unemployment benefits, with over 11 million claims still continuing to be paid:

We are paying more than 15 million workers to sit on the sidelines. We are paying more continuing claims in pandemic-related UI than we were a year ago, even though we are reopening almost everywhere and half of the country’s adults are fully vaccinated. This is creating supply restrictions in both goods and services at the same time that stimulus payments have goosed demand.

And what happens when demand rises and supply falls? Anyone remember their Econ 101 classes?

Consumer prices for May accelerated at their fastest pace in nearly 13 years as inflation pressures continued to build in the U.S. economy, the Labor Department reported Thursday.

The consumer price index, which represents a basket including food, energy, groceries, housing costs and sales across a spectrum of goods, rose 5% from a year ago. Economists surveyed by Dow Jones had been expecting a gain of 4.7%.

The reading represented the biggest CPI gain since the 5.3% increase in August 2008, just before the worst of the financial crisis sent the U.S. spiraling into the worst recession it had seen since the Great Depression.

A separate gauge that excludes volatile food and energy prices increased 3.8%, vs the Dow Jones estimate of 3.5% for so-called core inflation.

That’s a massive jump, one that underscores the momentum behind inflation. We’re not facing a massive risk of collapse at the moment, as we did in late 2008 thanks to the financial house of cards created by Fanny Mae and Freddie Mac. This time we’re looking at a long stretch in which inflation could really entrench itself into the economy, with dire consequences if it continues. Anyone who lived through the 1970s recalls how inflation corroded savings and made life difficult for those on fixed incomes.

Or even on non-fixed incomes, as the New York Times reported this morning:

Prices are rising for everything from airfares to used cars, and the data released on Thursday offers policymakers and investors another chance to assess whether that pickup is likely to be short-lived — or is poised to be the kind of lasting inflation that officials would worry about.

As prices have climbed in recent months, government officials and many economists have said the jump is likely to fade with time. The annual number is getting a boost from what’s called a base effect: The year-ago number was depressed by pandemic-driven shutdowns, so the current figures look large by comparison.

But the strong monthly figure for May, which came on the heels of a sharp rise in April, showed that prices have been moving up quickly for more than just technical reasons. The critical question is whether that is a transient trend tied to reopening or something more persistent.

The stakes are high. Inflation can erode purchasing power if wages do not keep up. While a short-lived burst would be unlikely to cause lasting damage, an entrenched one could force the Federal Reserve to cut its support for the economy, potentially tanking stocks and risking a fresh recession.

The Fed has sat on the sidelines so far, insisting that the supply-chain issues feeding the price increases are temporary. That might be true, but continuing the pandemic-related UI contributes mightily toward supply restrictions as well as increasing the price of labor artificially in the short term. Even if inflation ebbs over the next several months, however, it’s still eating away at the supposed wage gains coming from this subsidized labor shortage — and those wage gains will be very transitory when those subsidies end and workers have to flood the zone to find work.

Here’s one more point to remember about that, too. If the Fed has to raise interest rates to cool off inflation, that will impact job creation and restrain economic growth. The workers might be coming back to a situation where the jobs have suddenly evaporated — and they’ll have run out of unemployment benefits. What happens to demand and consumption at that point?