Playing with fire, but can they control it?

"By all accounts, inflation -- an acceleration in the prices of a representative basket of consumption goods and services -- has arrived in most Western countries," Prof VA Nageswaran. The Bank of International Settlements does not find any signs of sticky inflation. However, Profs Jorda, Singh and Taylor found that "pandemics do not destroy capital but induce labour scarcity and hence a rise in wages". Governments are insisting that inflation will be transitory. "US Treasury Secretary Janet Yellen urged other rich nations on Saturday to keep spending to support their economies even as the COVID-19 pandemic wanes, and said US inflation this year would be elevated but transitory," Reuters. "Yellen said inflation will remain elevated at 3% on a year-over-year basis until about the end of 2021." "There is still a slack in the labor market, she said, because of people who had lost jobs permanently, and it will take a while to reabsorb those workers into the economy." In his testimony to the House Financial Services Committee, Federal Reserve Chair Jerome Powell "reiterated his long-held view that high inflation readings over the past several months have been driven largely by temporary factors, notably supply shortages and rising consumer demand as pandemic-related business restrictions are lifted", AP. "Container shipping rates from Asia to the US and Europe increased to new record levels over the past week, ensuring transportation costs will stay elevated for companies heading into a peak season for rebuilding inventories," Economic Times (ET). "Cargo ships move around 80% of global trade by volume," Business Insider. "There are many caveats, but the folks who run Big Shipping believe the insanity will slow down by next year. Forecasters believe folks will buy less stuff as the world re-opens and vaccination rates climb, instead spending their money on services like travel and dining out. This will give importers and exporters chance to catch up on orders." But, what if outbreaks of virus infections result in continuing supply restrictions? In India, consumer price inflation (CPI) was 6.26% in June, slightly lower than 6.30% in May," The Indian Express (TIE). "No other country has faced -- or expects to face -- the high levels of inflation that India is becoming used to. In 2022, consumer prices will grow at a rate that is two-and-a-half times more than the rest of Asia's average," Udit Misra. Our labor force participation rate, which is the percentage of working age people looking for work, is lower than other Asian countries but our unemployment rate is higher, which means "even when only about 40 out of every hundred Indians in the working-age group look for a job, our economy still is unable to create jobs for them". No jobs and rising prices make a toxic combination. "Nominal rural wages have increased from Rs 349.61 per day in May 2020 to Rs 360.54 in April 2021, the latest period for which data is available," wrote Roshan Kishore. "When adjusted with the rural Consumer Price Index (CPI), real wages have fallen from Rs 231.2 to Rs 228.8 during this period." "According to an analysis by Pew Research Center, India's middle class shrank by 32 million people last year as a consequence of the economic slowdown, compared to what it was expected to be without the pandemic," CNN. A report by Credit Suisse "noted that the Gini coefficient -- a popular measure of inequality -- increased from 74.7 in 2000 to 82.3 last year. The higher the number the greater the disparity in income." Why are central banks maintaining a "permanent state of accommodation, so that 'transitory' inflation eventually becomes permanent but without being recognised as such". Because, "Eventually, in the second half of the decade, the inflation rate will reach a permanently high plateau, bringing down government debt ratios meaningfully, as seen in the second half of the 1970s," wrote Nageswaran. The union government's tax collections on petrol and diesel jumped by 88 percent to Rs 3.35 lakh crore (Rs 3.35 trillion) in the year to March 31, after excise duty was raised to a record high," India Today. Earning huge tax revenues while reducing government debt by deliberately raising inflation may seem very clever  to them but playing with fire is never a good idea. May cause an inferno.