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Opinion
Mohamed A. El-Erian

Faster Inflation Is Coming. How Bad Will It Be?

The potential consequences of higher prices fall largely into three camps: transitory, irritating or troubling.

Not worried yet.

Not worried yet.

Photographer: Elijah Nouvelage/Bloomberg 

An economic debate that has been heating up for a few weeks in markets and the academic world made a notable appearance in Congress last week when lawmakers questioned Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen about inflation. This is understandable given that the answers about the scale, scope and duration of a possible surge in inflation have implications that go well beyond economic well-being and the country’s borders.

Economists are mostly split into three camps when it comes to higher inflation, which has not been on the radar screen in any meaningful sense for more than a decade. The first camp, which seems to include both Powell and Yellen, considers any surge in inflation as primarily transitory with few if any consequential spillovers. The second thinks it could be a longer-lasting phenomenon whose potentially wider and more risky consequences would, nevertheless, be temporary and reversible. The third one fears that higher inflation could prove to be a more durable and consequential problem with multifaceted domestic and international effects.