The warnings that in some countries higher inflation is steaming, say, Pakistan, while in others, say the US, it lurks just around the corner are starting to show up everywhere.

They are appearing in some business surveys, with companies looking to raise prices as they prepare for a post-pandemic economy.

They are showing up in the bond market, where price moves in the last few months imply that big-money investors expect consumer prices to start to rise faster. And they are apparent in the news media, whether on magazine covers or in financial news segments.

But inflation itself is not showing up : The Consumer Price Index in December showed a rise of only 1.4 percent in what Americans paid for goods and services over the last year.

And top Federal Reserve officials made clear in recent days that they [still] viewed too-plow inflation as the bigger risk to the economy, not soaring prices.

High inflation causes its own sort of pain, as the purchasing power of money falls. But persistently low inflation is a worry, too, often a reflection of weak growth and stagnant wages - the predominant problem for the United States and other advanced economies for more than a decade.

How can one reconcile the inflation talk - and in some quarters, alarm - with the absence of actual inflation? It's easier than you might imagine.

It helps to think, not of a single inflation risk ahead, but of four distinct ones. In terms of significance, these range from mere statistical anomaly to a huge shift in a global economy. In terms of likelihood, they also range from near certainty to completely speculative.

Each of these four inflations has different implications, both for how ordinary people making economic decisions should react to them, and how policy makers, particularly in the Fed, should approach their work in the months and years ahead.

One of the concerns is that policymakers will conflate one inflation risk with another, which could lead to bad decisions, either choking off a recovery prematurely or, on the flip side, allowing a vicious cycle of inflation.

It can be hard to tease these things out in real time, but some simple metaphors can help. It we start to see higher prices later in the year, the first thing to ask is:

Is this a yo-yo effect; a story of hungry bears emerging from hibernation; the result of excess water sloshing around a bathtub; or a balloon finally being reinflated after years of leaking air?

The Publishing continues to Part-2 in the near future. The World Students Society thanks author Neil Irwin.


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