Inflation is painfully high, but it should ease soon

Nonetheless, the pandemic appears to be winding down. There surely will be more waves of the virus, but since the pandemic hit, each wave has been less disruptive to the economy than the one that preceded it. The virus is becoming less virulent, our vaccines and therapies more effective, and our economy’s ability to manage around the virus is improving.

Further, the worst of the economic fallout from Russia’s aggression also appears at hand. Oil prices have pushed higher again, this time on the European Union’s decision to partially ban Russian oil. However, any country that is going to sanction Russian oil has likely now done so, and other global oil producers have strong economic incentives to produce more, which they have announced they’d do. Oil prices, and thus gasoline prices, should decline later this year.

It is also encouraging that, for the most part, high inflation is not about outsized demand. Spending on goods — home improvement and consumer electronics, for example — is up strongly since the pandemic hit and we sheltered in place. But spending on services — think travel and elective surgery — has been diminished. However, the net of this is that consumers are spending about as much today as they would have if not for the pandemic.