LOS ANGELES (KNX) – From gas to food to medical care, inflation is impacting everything in our everyday lives.
So how long can we expect this to continue?
According to William Luther, Director of American Institutue of Economic Research’s Sound Money Project, don’t expect any kind of relief soon.
“The members of the Federal Open Market Committee at the Federal Reserve are predicting that inflation will be above its two percent market, all the way through 2024,” Luther told KNX In Depth. “So the rate of inflation is likely to come down, but it’s not going to come down as quickly as perhaps we hoped.”
Luther, who is also and economic professor at Florida Atlantic University, said the reason things are going back to normal are due to two things – real supply disturbances and nominal spending factor.
“You know, we stopped producing for a good two months and it turns out that if you’re not cutting down trees for two months, then roughly a year later the lumber is going to be affected,” he explained.
“Those kind of real supply disturbances, they eventually work themselves out and they tend to do so pretty quickly. As that supply recovers, prices come back down. But we’re also dealing with another factor, a nominal spending factor. You know, the government did a lot over the last two years to prop up income, to help businesses, to prevent those businesses from going bankrupt. They provided assistance to households, and in the process they loosened nominal spending a lot. Probably more than they expected to. And that money is out in the economy right now, it’s circulating, and as a consequence it’s driving up prices.”
Luther added that if you borrowed money last year, you may be in luck.
“If you borrowed and the inflation that we’ve experienced over the last year wasn’t expected when you agreed to the interest rate in that loan, then you’re paying back with dollars that are worth less than you expected they would be worth and worth less than the lender expected they would be worth as well,” he explained.
Listen to the full interview above.