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Transitory Inflation Turning Into an Inflationary Spiral

Transitory Inflation Turning Into an Inflationary Spiral

Consumer prices have been rising precipitously this year. If you annualize the Consumer Price Index through the first five months of 2021, you get a CPI increase of over 6%. Federal Reserve Chairman Jerome Powell continues to push the narrative that inflation is transitory, but not everybody buys into this storyline. On the Wolf Street Report, Financial Analyst Wolf Richter said Powell’s temporary inflation is turning into an “inflation spiral.”

Richter said some measure of inflation will likely tick down in the months ahead, but to steal Powell’s term, the relief will be transitory and only serve to offer false hope before inflation starts rising again.

The first bout of inflation always looks temporary. But during those first bouts of inflation, that’s when the triggers of persistent inflation, namely the inflationary mindset and inflation expectations are being unleashed.”

The markets seem increasingly skeptical of Powell’s insistence that inflation is transitory. Last week, the IMF warned of a “sustained” inflation rise in the United States. Many people are starting to talk about the Fed tightening monetary policy sooner rather than later to fight rising prices and worry this could cause a slowdown in the economic recovery. But Peter Schiff says the markets are bracing for the wrong impact. The Fed won’t fight inflation because it can’t. There is no way to tighten monetary policy without collapsing the economy.

It’s not that inflation is going to turn out to be not transitory and therefore the Fed is going to fight it,” Schiff said. “It’s that inflation is not transitory and the Fed is not going to fight it. And because the Fed is not going to fight the non-transitory inflation, it’s actually going to end up getting much worse than people think.”

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