Prices rose by 5 percent in May compared with a year ago, the largest increase since the Great Recession, continuing a steady climb in inflation even as policymakers insist on staying the course.
Price spikes often coincide with downturns, and officials from the White House and Federal Reserve have predicted that prices will climb over the coming months, especially compared with a year ago, when the economy was reeling from coronavirus pandemic shutdowns. However, the move adds new fuel to criticism from Republicans, and at least one prominent liberal economist, that too much government spending could wreak havoc and lead to an overheated economy.
It could take months before it’s clear whether the current rise in inflation is temporary. But the steady climb is already weighing on numerous policy debates. Republicans pushed back hard on President Biden’s proposal to spend $4 trillion on infrastructure and other proposals, complaining that it amounted to an infusion of too much money at a time when prices on certain products were rising much faster than wages. GOP opposition has led the White House to rethink its spending strategy in recent weeks.
As the world economy awakens from the 15-month slumber caused by the pandemic, Deutsche Bank has launched a series of research articles to spark debate and discussion about pressing post-pandemic economic issues.
On June 7, Deutsche Bank issued its first report of the new series, titled “Inflation: The defining macro story of this decade.”
According to the report, “US macro policy and, indeed, the very role of government in the economy, is undergoing its biggest shift in direction in 40 years. In turn we are concerned that it will bring about uncomfortable levels of inflation.”
That could be deemed an understatement considering that the U.S. economy is already experiencing “uncomfortable” inflation.
Consider: Based on the most recent inflation report from the U.S. Bureau of Labor Statistics, “In April, the Consumer Price Index for All Urban Consumers rose 0.8 percent on a seasonally adjusted basis; rising 4.2 percent over the last 12 months.”