Is Higher Inflation on Its Way?
Inflation is likely to be distorted somewhat by changing spending patterns resulting from the pandemic.
The pandemic’s economic effects are pushing inflation down. Inflation has been dropping because the pandemic is inherently disinflationary (i.e., pushing inflation lower) and even a bit deflationary (pushing prices themselves lower) in nature. With more unemployment comes less in wages paid to employees and so less consumer demand, which tends to push down on price inflation. Even where incomes are supported as they have been quite substantially in the US by stimulus programs, households have saved a larger part of their income; the US personal savings rate has risen from a 7.5% pre-COVID 19 level to 23% through to May 2020.
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