Inflation: Why It's Worse Than Many Fear. Moore's Law.

G. Dan Hutcheson

The Chip Insider®

Inflation: Why it's worse than central banks fear. Is inflation not transitory and worse than they say? Should we raise prices? These are two of the most common questions I have been asked since December of last year. The quick answers are yes and yes. Here's why and more:

What's been driving these questions has been in part due to the U.S. Federal Reserve's backing down from its view that inflation was transitory. The degree to which this claim is true might be questioned in Treasury Secretary Janet Yellen's recent comment that ... "If we're successful in controlling the pandemic, I expect inflation to diminish." That said, the world was pretty shocked when it was revealed that consumer prices in the U.S. rose at an annual rate of 6.8% in November and 7.0% in December — far above the FOMC's 2% target. And this is not the only place where it is happening. The Euro area, Britain, and Canada are running around 5%.

Now these are just levels and don't speak to the question of inflation being transitory or built in. That issue is dependent on the nature of pandemic-driven shortages and the money supply. The argument for it being transitory is that once the shortages are over, price gouging will end and overall levels should return to normal...

As COVID unfolded, broad money began to soar in early 2020 as the severity of COVID began to be realized. After the lockdowns in March, it quickly hit double-digit year-over-year growth levels in April, hitting a peak in September, slowing slightly to peak again in January-February of 2021. It did dip below double-digit levels in July of 2021 and in December was down to 8%, which is still high... Inflation didn't happen due to globalization, which was a massive arbitrage of wages from high-pay countries to low-pay countries... Hence... means the deflationary effects of globalization's wage-arbitrage are largely over. If you buy my line of reasoning, then you have to believe inflation is here to stay. Even if it isn't, you certainly don't want to miss out on the opportunity to raise prices due to the shortage.

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