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Consumer prices jumped 6.2 percent over the past 12 months, according to a Labor Department report released Wednesday morning. In response, four Yale economics professors expressed various levels of concern about current inflation rates and the post-pandemic economy.

Wednesday’s report revealed that the Consumer Price Index, which measures the price of a basket of consumer goods and services, was 6.2 percent higher in October 2021 than it was in October 2020. This marks the fastest increase in three decades; President Joe Biden declared on Wednesday that reversing inflation is a “top priority.”

“I’m now much more concerned than I was yesterday,” economics professor Samuel Kortum wrote in an email to the News. “My initial reaction is that it is a temporary rise in the price level that will not continue once supply chains start functioning properly again. But, the latest data suggest inflation may continue for longer than I would have expected.”

All four professors noted that inflation can be attributed to a rise in overall demand as the post-pandemic economy expands. Two of them, John Geanakoplos and Fabrizio Zilibotti, also mentioned recent stimulus packages as primary explanations for particularly high demand and resulting price increases.

Kortum added that he expects the Federal Reserve, the country’s central banking system, to soon increase interest rates to slow price expansion, which could curb inflation but also stall a return to pre-pandemic employment levels. The Federal Reserve — which targets long-term inflation rates of two percent — has recently kept interest rates very low, having targeted a federal funds rate of 0.00 to 0.25 percent since March 16, 2020.

Economics professor Giuseppe Moscarini said that he is “somewhat” worried, noting that the most recent inflation rates for food — 5.3 percent — and energy — 30 percent — were particularly high and tend to be more volatile than other categories. Energy prices in the future, too, will be harder to predict as the country shifts to clean energy, he said.

Geanakoplos said that prices are increasing faster than many wages are, meaning that some workers will experience an effective pay “cut” in real terms. He advised workers, including Yale’s own faculty, to ask their employers for raises.


“It’s more expensive to just leave your money in the bank and make no interest,” Geanakoplos said. “Take some of your money out of the bank and put it somewhere where it will be protected against inflation, and ask your employer for a raise.”

Moscarini added that inflation is not easy to tame once it has started because workers and businesses change their expectations for wages and prices. Zilibotti expressed concern that fast inflation could “spiral,” harming the economy as high levels of inflation did in the 1970s.

Still, both professors said that inflation has remained below desirable levels over the last decade.

“I am not surprised by the surging inflation,” Zilibotti said. “If anything it surprised me how long it took to gain momentum.”

Geanakoplos added that some policymakers seem surprised by current price increases because inflation was not a major problem after the 2008 recession, when the Federal Reserve injected large amounts of money into the economy. Federal intervention today is different than it was in 2008, he explained, because money injections in 2008 involved the Reserve purchasing bonds, while money from the recent stimulus bills passed under Biden and former President Donald Trump flowed directly to consumers under the expectation that they would spend it.

Moscarini said that current inflation follows conventional macroeconomics principles but that higher inflation is often linked to more volatile prices overall, making it harder for businesses and consumers to make long-term financial decisions.

Current plans for infrastructure and social spending would be beneficial to the growing economy in the long-run but could complicate current issues with inflation if timed incorrectly, Zilibotti noted. That timing will depend, he emphasized, on whether a possible rise in winter COVID-19 cases forces new economic restrictions, making vaccination campaigns all the more important, particularly in countries that have so far had limited access to vaccinations.

Yale’s Department of Economics was founded in 1937.

ISAAC YU
Isaac Yu writes about Yale's faculty and academics. He lays out the front page of the print edition, edits the News' Instagram and previously covered transportation and urban planning in New Haven. Hailing from Garland, Texas, he is a Berkeley College sophomore majoring in American Studies.