ORLANDO, Fla. — Higher prices have been pinching Americans at every turn, from gas and food to housing expenses. However, a University of Florida economist said the best course of action for the Biden administration to take is to let the economy take care of itself.
Dr. Amanda Phalin, of the Warrington College of Business, first warned that the relatively high inflation rate would stick around for a while after the rate hit 5.3% in September.
Since then, many of her opinions haven’t changed. She credited cost increases to continued shipping constraints and cost hikes for all types of goods, particularly computer chips.
She also predicted a surge of demand-driven inflation as children were able to be vaccinated, which appeared to be coming true as the October inflation rate rose to an even-higher 6.2%.
“We are all starting to buy plane tickets and tickets to Disney and do all the things that we’ve been putting off for the last couple of years,” she said.
Phalin said the combination would lead to continued price hikes well into next year, after many families exhausted their vacation savings on summertime trips. Then, she said, inflation would likely trend downward.
The professor’s prediction might be met with dismay from the growing chorus of Americans demanding the White House do something to keep gas or food prices from climbing any higher. However, Phalin maintained her position that this current bout of inflation was beneficial to the economy.
“We have been coming from a place of extremely low inflation for a very long time,” she said. “We need a little bit of inflation. That signals economic growth, that signals that aggregate demand is expanding and that the economy’s moving.”
Phalin cited wage hikes being given to workers as a sign that the economy wasn’t out of control and compared the US to Venezuela, where the inflation rate is 5,500%. She predicted the US rate would peak under 10% on its own.
Because of this, she warned that it would be a mistake to try to corral the inflation rate while the economy was transforming.
“If we raise interest rates too early, we’ll be restraining growth while the supply bottlenecks still need to get worked out,” she said. “I think that we need to give our economy room to run and room to grow. And that is what having a little bit of inflation does.”