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John Authers

What 2021 Has Taught Us About Inflation

Earlier in the year, some costs spiked due almost entirely to transitory pressures. Since then, however, overlapping factors have combined to broaden and entrench price rises.

Gyrations in energy prices have fueled inflation expectations. 

Gyrations in energy prices have fueled inflation expectations. 

Photographer: Mario Tama/Getty Images

If 2020 was the year we all learned about epidemiology, 2021 has taught us more than we ever wanted to know about inflation. Price rises had remained calm and controlled for four decades, ever since the U.S. Federal Reserve under Paul Volcker hiked interest rates aggressively in the early 1980s. Barely anyone working today has any practical memory of inflation as a serious and problematic reality.

That explains the intensity of 2021’s year-long debate over whether new stirrings of inflation were merely “transitory,” or whether the U.S. and global economies should prepare for a regime where inflation was once again a fact of life. At year’s end, U.S. inflation has reached a stunning 6.8%, the fastest annual rate since 1982, and the Fed has admitted it is more than a passing side effect of the pandemic. The debate is effectively over.