Debunking the Top 5 Myths About Inflation

Debunking the Top 5 Myths About Inflation

Labor market pretty much strong right now, but inflation continues to be a pressing economic issue.

The reasons for the escalation of inflation are hotly debated, but some of the theories gaining momentum are not based on data. The EPI study clearly points to the causes of inflation and how policy makers can best contain it. Below we debunk 5 major myths about inflation.

  • Myth #1: Rising wages for workers cause inflation. Nominal wage growth—albeit faster than in the recent past—has lagged far behind inflation, meaning that labor costs damping, not amplificationinflationary pressure all the time.
  • Myth #3: Federal relief and recovery measures have overheated the economy and fueled inflation. Evidence from the past 40 years strongly suggests that profit margins should fall and the share of corporate income devoted to wages should increase as unemployment falls and the economy recovers. But the opposite happened so far in recovery, casting doubt on inflationary expectations based simply on claims of macroeconomic overheating. Shortly speaking, labor market is strongbut does not overheat.
  • Myth #4: The abolition of tariffs on imports will be the main tool to fight inflation. Tariffs were introduced well before the start of 2021 when inflation started to pick up and the abolition of tariffs could not significantly restrain him. Further tariff removal would not cost. The removal of tariffs could lead to job losses, plant closures, cancellation of planned investments, and further destabilization of the domestic manufacturing base, increasing domestic reliance on unstable import supply chains.