In short, there is an inflationary price to pay when you catapult rapidly out of a pandemic-induced recession, and we are paying that price now. But it still looks transitory to me—though that doesn’t mean it will be over in a month or two. It won’t, which is presumably why Federal Reserve Chairman Jerome Powell recently stopped using the word.
Several factors point to lower inflation rates ahead. First, the price of crude oil, which more than doubled between November 2020 and October 2021, has begun to fall. Second, normal consumption patterns will re-emerge as pandemic fears subside. Consumers will start buying more restaurant meals, hotel rooms and movie tickets—and fewer things that are shipped in boxes. Omicron may delay the return to normalcy, but it will happen. Third, capitalism is on our side. Shortages raise prices, but high prices create opportunities for profit, which attract capitalists to alleviate the shortages. They don’t do this out of altruism, but out of self-interest.
The process takes time, however—time to increase semiconductor manufacturing capacity, time to get more trucks on the road, time to enhance port capacity and so on. Bottleneck inflation may be gone in a few months, or it may take another year or so. You can call another year of high inflation “transitory” or “terrible.” But it isn’t likely to be permanent, which is why I’m still on Team Transitory.
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