Months later, as prices continued to rise, the Biden administration switched gears to blame Russian President Vladimir Putin’s invasion of Ukraine. While it’s true that the war in Ukraine has helped nudge fuel and food prices higher, the true driver of inflation is monetary policy rather than short-term shocks to supply chains. If the money supply had been kept in check, consumers would have offset higher gas prices, for example, by cutting back on purchases elsewhere and inflation would have been contained.
It wasn’t. And whether it can be contained now remains an open question.
A Deutsche Bank report published last week looked at periods where developed economies saw inflation above 8 percent—as is happening now in the United States and Europe. Historically, it takes around two years for inflation to fall below 6 percent “before settling at about that level for five years after the initial spike,” the Financial Post notes.
Citing a report from Oxford Economics, a forecasting firm, the Financial Post warns that “painfully tight monetary policy might be required for central banks to bring inflation all the way back to target. Public support for such a policy appears limited.”
[Stagflation’s already here, and recession will shortly follow. If the Biden administration adopted supply-side economic policies, especially on energy, we could avoid it or at least dramatically lessen the impact. But since we’re talking about Slow Joe here, well … — Ed]
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