Inflation Beast Won't Lie Quietly Again for a Long Time

We woke the beast, and now we may have to learn to live with it. After more than 20 years of low, stable inflation, it's come roaring back — at more than 9% — and it may never return to pre-pandemic levels. We've already lost the benefits of our former economy: low interest rates and pay raises that actually make you richer. Now we also have to manage a new risk in our lives, the beast we thought we had tamed.

The pandemic changed many things, and it's forced me to give up, reluctantly, my long-held belief that inflation is something we know how to control; that policy makers can pick an inflation number, maintain it, and all will be well; that Americans will always know what our dollars are worth.

That certainty has a lot of value. If you have two different assets with the same average return, but one is more volatile than the other, the risky asset is worth less — especially to low earners on tight budgets. The same principle applies to your income. Knowing how much beef and gasoline will cost helps you plan and budget. So less certainty around prices means your income is less valuable. Essentially, the additional risk amounts to a wage cut.

Inflation going forward will not only be higher, but also less stable. And there are reasons for that.