What you need to understand inflation

The debate about inflation is a longstanding one in macroeconomics. There are always doomsayers warning that inflation is around the corner, and then others trying to calm those fears. Alarmists most often recall the tumultuous 1980s 14% inflation rate and are concerned a relapse might be on the horizon. There is currently considerable disagreement about how concerned people should be about inflation. Before the pandemic, the unemployment rate had fallen by quite a bit, to the point that typical economic thinking would have said it should have caused inflation to rise. But we did not see that happen. Some economists think the pent-up demand from the pandemic lifestyle is driving a rise in spending as COVID-19 becomes more under control. That influx of money into the economy could push prices higher, in turn potentially driving inflation above the Federal Reserve’s target rate of just over 2%.