LULU GARCIA-NAVARRO, HOST:
Out-of-control inflation has decimated economies around the world. No, the United States is not Venezuela or Lebanon, where powdered baby milk now costs a quarter of the monthly salary of an average working person, but there are things to be worried about. The Consumer Price Index, a barometer for inflation, saw its biggest jump in 13 years this June here in the United States. Jason Furman led the Council of Economic Advisers in the Obama White House and now teaches economic policy at Harvard. And he joins us now. Good morning.
JASON FURMAN: Morning.
GARCIA-NAVARRO: Are we entering an inflationary phase?
FURMAN: We certainly have a lot of inflation. Over the last six months, we had 3.6% inflation. Normally, it would take two years for prices to increase that much. But, you know, as you noted in your intro, this is very, very far from, you know, the types of catastrophes you see around the world.
GARCIA-NAVARRO: Sure. But it is, of course, a worry. I mean, Neel Kashkari is in charge of the Minneapolis Fed, and we heard a conversation on this program yesterday that he had with my co-host, Scott Simon. He told Scott that some price spikes, like for cars, may last a couple of years because it takes that long to ramp up computer chip production. Let's listen.
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NEEL KASHKARI: But I'm not seeing any evidence yet that we're going to have sustained high inflation beyond this reopening period. Whether that's six months or a year or 18 months, I'm not sure.
GARCIA-NAVARRO: So a couple of years for cars, possibly 18 months for other stuff, but that's a lot of money out of people's pockets.
FURMAN: Yeah. I think I might be more worried that some of the inflation is persistent than Neel is. Everyone agrees that we're not going to continue to see prices rising 3.6% every six months. That's going to come down. But I don't think it's going to come down all the way to the 2% inflation that the Fed has historically wanted. I think there's years' worth of pressures. Both demand, people buying more - and supply, the economy can't produce as much as it used to. And the combination of those, I think, is going to last a while.
GARCIA-NAVARRO: Are you worried about that?
FURMAN: I am worried about it but not terrified about it. Just to understand, a lot of economists - and I count myself as one of them - think steady 3% inflation that was predictable and controlled at 3% would actually be better than steady, predictable 2% inflation that we've had in the past. The reason for that is that it gives the Fed a little bit more room to combat recessions and would make recessions less bad. So if we could engineer that outcome, that would be great. The problem is it's really tricky getting from here to there. If the Fed overreacts, it might cause a recession. If wages don't go up, workers could be hurt by this. So I think there's a lot of perils here. But there's also, you know, a path to navigate through it, and that's what I hope happens.
GARCIA-NAVARRO: Before I get to the Biden administration's plans, I do want just briefly to ask you sort of news you can use in the sense of what should I, as an individual, do in an inflationary period? What should I do to sort of protect myself?
FURMAN: You know, the biggest protection is if you can get a raise from your employer. Now, most people aren't in a complete position...
GARCIA-NAVARRO: If anyone's listening, I'm ready.
(LAUGHTER)
FURMAN: ...Complete position to get that. But, you know, it used to be that wages went up with inflation. When inflation went up, there were escalator contracts and the like. Those are long gone. I think it's going to be important, over the next year or two - you know, we could have easily 5% inflation this year. If you get a 4% raise, you just lost money on the year. You might've lost money last year, too, in the pandemic when a lot of people got wage freezes. So I realize that's not something people control. But, you know, employers - they're getting more money because of higher prices. They should be paying more this year, as well.
GARCIA-NAVARRO: So the Biden administration and congressional Democrats are pushing for a trillion dollars on infrastructure and 3.5 trillion on climate change, education, Medicare and more. Do you think those numbers should be dialed back? That's what Republicans say - you know, based on what we saw the economy do in June?
FURMAN: I think the needs that this country has in terms of children, in terms of paid leave, in terms of infrastructure, in terms of climate change - they are so large, those numbers should not be dialed down. And I would separate the inflation debate. This year, we injected $2 trillion in the economy in a single year with almost no notice. That's a difficult thing for the economy to absorb. The legislation Congress is talking about - it's spread out over 10 years. A lot of it's paid for. It would expand the size of the economy. And it would give the Fed as many years as it needs to offset it. So I wouldn't worry about inflation at all in the context of the new proposals.
GARCIA-NAVARRO: I mean, one of the things that we do know about inflation is that it is about sort of confidence and perception and that even talking about inflation can lead to inflation. Is that something that you are thinking about?
FURMAN: Absolutely. Inflation expectations are this magical thing that show up in our economic models, and we don't quite know where they come from. We don't quite know whose expectations matter. But yes, inflation can be self-fulfilling. If you think there is going to be inflation, you're going to raise your wages, raise your prices, and there will be inflation.
GARCIA-NAVARRO: And do you think that that is something that we're in danger of here?
FURMAN: The Fed is very much trying to control that. I think they'll probably be able to. But we'll see.
GARCIA-NAVARRO: That's Jason Furman, formerly of the Council of Economic Advisors, now at Harvard. Thank you very much.
FURMAN: Thanks for having me. Transcript provided by NPR, Copyright NPR.