Inflation has risen for nearly two years now. The Consumer Price Index drifted from 2 to over 4 percent in April 2021. In May 2021 it hit 5 percent, in October 2021 it surpassed 6 percent, and in December 2021 it crossed the 7 percent level. From Feb 2022 through May 2022, the monthly CPI changes were the largest they’d been in decades; in fact, there hadn’t been a 1 percent monthly CPI headline change since mid-2008. The same applies for two alternative measures of inflation: the GDP Deflator and the Personal Consumption Expenditure Price Index. All three inflation measures spent years oscillating within narrow ranges, only to rise steadily to multiples of their long-held values between early 2021 and late 2022.
In the period after the massive fiscal and monetary programs employed to address the effects of pandemic mitigation measures, officials at the Fed must have been tracking prices and other data points closely. In all likelihood, they were watching more closely than usual. Several times in the summer and early fall of 2021 they publicly addressed the rising price levels, categorizing them as “transitory.” But no measures, other than assurances of their watchfulness, were undertaken to stem or slow the inflationary upsurge until March of 2022.
The delay in intervention has led to accusations of both incompetence and intentionality. Certainly central bankers face a vast marshaling of barriers ranging from clumsy “tools,” to lag effects, to political pressures and beyond, impacting the crafting of effective monetary policies. It seems fairer to summarize those difficulties as unavoidable aspects of the insurmountable barriers associated with central planning rather than simple ineptitude, but that is a separate issue.
The latter explanation tends to be associated with the idea of the Fed or central banks more broadly as saboteurs. Rather than overmatched technocrats, central bankers are seen as cartoon villains, imbued with expert skills and inspired by tireless malevolence. To increase the population’s dependence upon government programs, to more deeply entrench elites, or for any of a number of other alleged purposes, the story goes, the Federal Reserve and other central banks are purposely permitting or even causing inflation to rise. Ironically, as in the case of 9/11 conspiracy theories, crediting governments with the ability to execute massive, intricate, perfectly timed and executed plots–with the purported involvement of thousands of people keeping secrets for months or years—is an unabashed endorsement of the competence of bureaucrats and the feasibility of central planning.