In the months ahead, inflation looks almost certain to rise, and maybe by a lot. That will fuel a debate, already under way, over whether the large amount of Covid-19 relief coming out of Washington adds up to more than the economy can safely handle.
What the debate might hinge on is the answer to one question: How long will higher inflation persist?
The Labor Department on Wednesday reported that consumer prices rose 0.3% last month from December, putting them 1.4% above their year-earlier level. Prices excluding food and energy items—the so-called core aimed at better reflecting inflation’s underlying trend—were up 1.4% from a year earlier.
So for now inflation is well below the 2% the Federal Reserve is aiming for, especially considering that the Commerce Department inflation gauge the central bank favors runs cooler than the Labor Department’s.
But with Covid-19 cases already down significantly from a month ago while millions of Americans are getting vaccinated each week, the pandemic’s hold on the country could be far looser by the time spring arrives. As people lower their caution levels and restrictions ease, spending on services such as travel and restaurants could surge. And people will have a substantial amount of money to spend.
