“Don’t Worry About Inflation. It’s Transitory.”

That’s what Jerome Powell, Chair of the Federal Reserve, and most leading economists are telling us.  The idea is that the surge in inflation reflects the fact that last year at this time prices were down due to the pandemic.  The stay-at-home orders, the fact people wanted to avoid contact with other people, etc., cut demand and prices were down.  Now, demand is up, plus there are kinks in supply chains, which is pushing prices up.  Once those things are over, inflation will go back down.  Which may be true.

But what that explanation misses is that, while the rate of inflation may go back down, those increased prices, which the surge in inflation gave us, are going to stay up.  Just because the rate of inflation goes back down at some point in the future, doesn’t mean that the prices on groceries or anything else are doing to go back down to where they were.

It's sort of like the difference between calculus and arithmetic.  Calculus measures the rate of change.  Arithmetic tells up how much things go up.  The rate of change in prices may decrease in the future, but the prices that have gone up will stay up.  Inflation may be transitory, but the higher prices we have to pay because of inflation aren’t.  That may not be the way economists look at things, but it’s the way regular people do.