Inflation used to be so 1970s — like “Saturday Night Fever” and Jordache jeans. But as we now know all too well, the scourge of rising prices is back, and no one’s really sure how long the flareup might last.
The government’s latest inflation report, released on Friday, didn’t do much to settle the question. The uncertainty clouds the already iffy prospects for President Biden’s big spending package while leaving the Federal Reserve with a difficult job: cooling off the economy without putting it into another recession.
The Consumer Price Index jumped 6.8 percent in November from a year earlier, according to the Labor Department. The increase was driven by items that have been getting more expensive for months: gasoline (up 58 percent from a year ago), food (up 6.1 percent), new vehicles (up 11 percent), and used cars and trucks (up 31 percent).
The economy hasn’t run this hot since 1982. Back then, however, prices were on the way down after double-digit inflation roiled the country for two significant stretches during the previous decade.
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There’s almost no chance we return to those bad old days, according to economists. But will inflation get worse from here or better?
“We don’t really know,” said Bill English, a finance professor at the Yale School of Management and a former Federal Reserve official. “The fact is, we never really know.”
Economic forecasting is tough to do with precision. The pandemic vastly complicated matters by distorting consumer spending patterns, disrupting supply lines, and leaving many companies short of workers.
In the spring, economists labeled this bout with inflation “transitory.” While the term is conveniently imprecise, the consensus view was that pricing pressures would be easing by now.
The consensus was wrong. The Delta variant slowed the recovery. Clearing production and distribution bottlenecks has proven harder than just about anyone anticipated.
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That’s bad news for Biden and congressional Democrats as they barrel toward the 2022 midterm elections with razor-thin majorities in both chambers in danger. Even though the economy is booming and unemployment is falling, inflation is undermining Americans’ confidence in the future.
“When you go to the gas station or supermarket you feel sick,” said Peter Ireland, an economics professor at Boston College. A pickup in inflation from 2 percent to 2.5 percent, say, has a minimal impact, he said. “What we’ve got now is a real thing. People say this is cutting into my standard of living.”
Republicans blame Biden for fueling inflation with overly generous stimulus programs, which financed a boom in spending that overwhelmed factories and distribution systems. There’s some truth to the criticism, and Friday’s CPI report handed the GOP more ammunition in its fight against the president’s latest spending initiatives.
“We know that by end of 2020 the economy was coming back much more than expected,” Ireland said. “You have to ask, ‘Was the last round of fiscal stimulus really necessary.’ " The third and final pandemic relief checks went out in the spring.
Biden acknowledges that the rising cost of living is a problem but argues it’s the result of severe supply chain problems, not government spending.
“Every other aspect of the economy is racing ahead, it’s doing incredibly well . . . but inflation is affecting people’s lives,” he said on Friday when reporters asked about inflation after a speech at the White House. “It’s a real bump in the road.”
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But, Biden added, price increases will start slowing soon.
In fact, some prices already are falling. After soaring 76 percent this year through Oct. 26, oil prices have fallen 15 percent. Natural gas, used for heating, has dropped 28 percent since mid-October.
Mark Zandi, chief economist at Moody’s Analytics, also has identified trends in supply deliveries, US vehicle production, Asian semiconductor output, and wages that point to prices cooling off.
One essential cost that will sizzle for a while: housing. The Labor Department report showed a 3.8 percent increase in shelter, which encompasses rents and homeowners’ equivalent of rent.
Still, “November will likely be the peak in inflation,” Zandi said in an e-mail. “As the pandemic recedes — each wave is less disruptive than the previous one — inflation will moderate.”
He expects inflation to be near the Fed’s 2 percent target by this time next year.
The contrarian view — that inflation will be higher and last longer — has been most prominently espoused by Larry Summers, the former US treasury secretary.
“We’ve put in motion, for the first time in 40 years, excessive inflation caused by overheating of the economy,” Summers said on Bloomberg Television’s “Wall Street Week.”
“We’re going to entrench inflation way above 2 percent — perhaps in the 4 percent or even higher range,” he said. “The Fed’s going to have to take substantial action to control inflation unless there’s some kind of other adverse development — a crack in markets or something of that kind.”
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The Fed will be forced to raise interest rates earlier, and more frequently, than planned, Summers said. Higher rates sap growth — and reduce inflationary trends — by boosting the cost of mortgages, car loans, credit card advances, and business borrowing.
The Fed cut interest rates to near zero at the start of the pandemic and until this month was buying $120 billion a month in Treasuries and mortgage securities as a way to support the economy. Fed policymakers, who recently backed off their characterization of inflation as temporary, are set to meet next week to discuss when to end that bond-buying program and to start lifting interest rates.
Those decisions hinge in part on two questions, according to Megan Greene, a senior fellow at the Harvard Kennedy School.
First, will American consumers go back to spending money on travel, dining out, and other services at the rate they did prior to the pandemic? Spending has shifted heavily toward goods, and that has left suppliers scrambling to meet demand and resulted in higher prices.
Second, will the labor shortage continue to ease? Getting more people into the workforce would take the pressure off wages.
“Neither question was answered today,” Greene said.
Jim Puzzanghera of the Globe staff contributed to this report.
Larry Edelman can be reached at larry.edelman@globe.com. Follow him @GlobeNewsEd.