> Super tight labor market is what will create the self-fulfiling cycle of prices up => higher wages => prices up. I think the Fed is trying to create unemployment, so that it breaks the ability to demand higher wages, and stops the cycle.
This is the current view of most people I talk to but I’m skeptical that rising wages is the cause here given what prices we are seeing rise the fastest. If rising wages were the cause, I’d expect to see a different mix than what we are seeing. For example, costs of groceries are rising faster than going out to eat even though eating out requires lots of labor. There are lots of these examples, but to me the prices that are rising don’t seem to line up with past examples of wage fueled inflation. It seems supply is still an important issue and a lot of the supply constrained resources are going to be difficult to suppress demand for.
I’m worried about this narrative that inflation goes into some unstoppable cycle and the only way to stop it is to intentionally cause a recession. If rising wages isn’t the main cause it will take a lot of damage to successfully curb inflation, but people will justify the suffering as necessary to prevent a greater evil.
I don’t think there is great evidence that inflation leads to some unstoppable cycle. The only historical examples of hyperinflation are ones that were caused by deep underlying issues in a country’s economic viability or cases where a country owed an extraordinary amount of debt in a currency they did not control. Yet somehow it seems many are under the impression that we are doomed to the same fate despite sharing none of those same characteristics. This believe will be used to justify killing labor power, which means the burden is on the lower rungs of society yet again. A shame, especially since we haven’t seen strong labor power in quite a long time and were just starting to.