The economy is revving up

To be sure, rising prices are also a reflection of the economic recovery—and the economic stimulus. Americans are spending more, resulting in higher prices for all kinds of products, from food to clothes. But that doesn’t mean inflation is about to get out of control. April’s price increases should be looked at in the context of the sharp drops at the beginning of the pandemic. Those kinks should be ironed out as time goes by.

The same is true for the supply chain constraints that are pushing prices higher. In fact, a big chunk of April’s overall increase—more than a third—can be attributed to the rising prices for used cars.  Once manufacturers restock supplies of new cars, demand for used cars should wane and prices should go down.

Many economists, including officials at the US Federal Reserve, are expecting that will be the case for prices in general sooner rather than later. After the release of the inflation report, Fed vice chair Richard Clarida said he expects prices to keep rising for a few months before easing by the end of the year. “I expect inflation to return to—or perhaps run somewhat above—our 2% longer-run goal in 2022 and 2023,” he added.

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