Inflation In 2022 May Be ‘Above’ What It Was Last Year, Warns Leading Economist
Shelves at a supermarket are nearly empty on January 13, 2022, in Bethesda, Maryland.

Larry Lindsey — the director of the National Economic Council under President George W. Bush — is warning that inflation could be “above” 2021 levels in 2022.

In the month of December, consumer prices rose by 7% over the previous year — the highest rate in roughly four decades. Though nominal wages have been rising, “real average hourly earnings” — which consider the effect of inflation — decreased by 2.4% from December 2020 to December 2021, starkly cutting the purchasing power of American households.

During an interview with Fox Business anchor Maria Bartiromo, Lindsey — who also served as a member of the Federal Reserve Board of Governors through the 1990s — said that inflation is now “embedded into the labor market.”

“There is never an example of getting inflation to this level, embedded in the labor market and it ending without recession… I don’t think we’re going to have a recession this year,” he said. “Slower growth, maybe. So I don’t think there’s any chance at all decelerating inflation.”

“So until you get the overnight interest rate up somewhere close to at least the prevailing inflation rate, you’re really not going to make a dent in inflation,” he continued, referring to the Federal Reserve’s upcoming interest rate hikes, which place downward pressure in prices. “We’re going to continue to have inflation this year, probably at or maybe even a little above what last year’s pace was.”

Lindsey’s remarks were similar to those made by Harvard University economist Kenneth Rogoff, who said that “it’s not so easy to raise interest rates to fight inflation when public and private data is high, when the stock market is high, when housing prices are high, when the economy is still weak.” Central bankers willing to do so would have “a lot of stomach.”

Highlighting the impact of inflation on American consumers and small businesses, Sen. Rand Paul (R-KY) released a report earlier this week called The Hidden Tax:

71 percent of households making under $40,000 annually have indicated economic hardships from rising prices, as opposed to just 29 percent of households making $100,000 or more.

Low and middle-income families spend a larger portion of their income on high-inflation items, such as gasoline, used cars, and food. Families in the lowest income quartile spend nearly 40 percent of their annual income on these three categories. As a means of comparison, families in the top quartile spend only 10 percent of their annual income on these categories.

“$4.9 trillion in COVID-19 stimulus spending has led to one of the highest and most sustained levels of inflation in U.S. history,” Paul commented. “While government stimulus spending was intended as a form of relief, and low and middle-income families as well as small business owners were promised that their taxes would not increase, Americans everywhere are now paying a hidden tax called inflation.”

“In recent months, prices on nearly everything from gas, food, and clothes to electricity, car prices, and rent, have all increased, and unfortunately it’s only going to get worse,” he continued. “Congress needs to realize that further spending at this time of rapidly rising prices is only going to continue the trend of rising prices on this nation’s already vulnerable businesses and families.”

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