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Melissa Harris-Perry: You're listening to The Takeaway. I'm Melissa Harris-Perry in for Tanzina Vega. During the pandemic I switched to online grocery shopping, but now that I've vaccinated I'm back to pushing my buggy down the aisles of my local store.

Speaker 2: Welcome to our supermarket.

Melissa: Sniffing, squeezing, and eye my favorite produce again is a great feeling, but the bottom line at the cash register these days tends to drain my enthusiasm. I don't even want to talk about what it costs my family to rent a minivan for a long drive to New Orleans for the 4th of July. The price prompted my husband to ask:

Speaker 3: Whoa, are we renting or buying this thing?

Melissa: Welcome to post-pandemic inflation. Here's treasury secretary, Janet Yellen, speaking on June 5th.

Janet Yellen: We have in recent months seen some inflation and we, at least on a year over year basis, will continue, I believe, through the rest of the year to see higher inflation rates.

Melissa: In June, the consumer price index, the main tool for measuring inflation, came in at 5.4% over last year, the largest jump in 13 years, and the increase can mainly be attributed to products that were impacted by the pandemic, like used cars, washing machines, and airfares. But how long will this inflation lasts and who will it affect? Here to answer to these questions and more is Trevon Logan, professor of economics at the Ohio State University Trevon, welcome to the takeaway.

Trevon Logan: Welcome. Thank you. Also with us is Heather Long, economics correspondent for The Washington Post. Heather, welcome back to the show.

Heather Long: Thank you. Great to be here.

Melissa: Trevon, can you take us back to Econ 101 a little bit and remind us how inflation is calculated?

Trevon: The most basic way of thinking about inflation calculation is to take us a basket of goods you would purchase, so a simple example, say everyone purchases an apple and an orange. If on Tuesday, apples and oranges are a dollar each and you spend and you purchase one apple and one orange, you would have a $2 expenditure and that would be our price index that we would index our inflation measure to. If in two weeks the price of apples doubled, we would assume that you're going to buy the same apple and orange, and then your expenditure would be $3, and we would say that prices have increased by 50%.

Melissa: I feel like I missed the grade I could have gotten on econ if only you had been my professor because that makes perfect sense to me. Now, Heather, I have to say, as I was reading some of your reporting on our current inflation, is it true that we can blame all of this on bacon?

Heather: [laughs] Well, it's certainly been one of those skyrocketing, that's the apple in Trevon's example right now for sure. A lot of people are noticing prices going up. It's up about 8.4% according to the last read, but it's interesting to think about it. Bacon, for instance, it's up over 8% from a year ago, but of course, what was going on a year ago, we were in the middle of the pandemic. Some prices were stagnating or even dropping a little bit on some products like hotel rooms that nobody wanted to stay in.

Part of the reason we're seeing these eye-popping numbers this year is because it's compared to a year ago when prices and the economy were in a very, very different place than they are now.

Melissa: That point about us being in such a different place. Trevon, let me come to you on that because your example about the apple and the orange and yesterday was $2 now it's $3, that's going to be rough because I'm going to still need that one apple and that one orange. Are these inflation numbers reflecting the lived reality for folks on the ground right now? Me at the grocery store, for example, or is it that things have shifted so much that we're not really feeling inflation?

Trevon: Yes. There are two things. In this apple and orange example, if apples now go from being $1 to being $2, you might decide not to purchase the apple and you might decide to purchase two oranges. When these prices rise, one of the things that we know the consumers will do, also going back to Econ 101, is they're going to substitute towards a good that is now relatively cheaper, and that is one of the things that is not reflected in some of the ways that we calculate the consumer price index.

As some of these goods increase in price, so bacon now is much more expensive than it was a year ago. You might decide to substitute towards chicken, although what I also know is that chicken wings are in short supply.

Melissa: Nobody, nobody, and I'm speaking as a southerner, is ever going to substitute chicken for bacon. [chuckles] Heather, can you help us understand whether or not this is likely temporary or whether we're looking at price increases that are here to stay?

Heather: That is the key debate, Melissa, that's going on in the White House and the [unintelligible 00:05:17] of power on Wall Street and in many parts of the United States. Is this just the summer of high inflation and then it'll be forgotten by Thanksgiving or is this here to stay? It was interesting this week, the head of the federal reserve, our most powerful policy maker, he even said he is "not comfortable with where things are right now".

A lot of it you can look at and you can say, yes, this probably won't last forever. Things like the airfares being up 25% or the hotel prices surging or furniture. Anyone who's tried to buy a laundry machine or a dishwasher or furniture right now, obviously when everyone, many people were at home, there was just this huge home renovation craze and home beautification craze going on and so there's still back orders on a lot of couches and these sorts of things.

Same thing, about a third of what's driving inflation right now is this surge in used car prices. I personally went car shopping this spring. I can attest the sticker shock of being on these car lots and seeing used cars are up about 45% from last year. But usually with goods, with things like couches or cars, eventually the factories produce more. The companies get those items shipped and they get out into the stores and into the store room floors and we have enough products to bring the prices back down, but how long does that take?

Does that take a few months? Does that take a year? That's why most people are still arguing the inflation could be short-lived. What I worry a lot about, what's probably not short-lived, there is now starting to be some uptick in rent prices and those tend not to go back down. Anybody who's gotten a rent increase knows when they jack you up $100, $200 or however much a month, they usually don't come back next year and cut your price.

Melissa: Trevon, can you help us to think a little bit about this relationship between interest rates and inflation? Typically they're inverse and right now we've got very low-interest rates. Is that causing the inflation rate to rise?

Trevon: Probably not. One of the things that we know from the type of inflation that we're experiencing right now, and this really gets back to this debate about whether it is transitory or permanent, is that we would have a situation of low-interest rates for a time to ease monetary policy, but we've had low-interest rates for quite some time. We've had historically low interest rates essentially since the great recession, and we haven't had significant or out of control inflation in that time period.

It's not likely that there's a strong relationship between monetary policy right now in terms of interest rates and inflation, but one of the issues is the way that we know we can get inflation under control, is by raising interest rates. That is one of the tools that the Fed would use to control inflation if it were to get out of control. It's another reason why people are not as concerned about the relationship, because we have some tools that the Fed can use to bring inflation under control.

Melissa: Heather, sometimes things are correlated even if they aren't causal. We know there's a strong correlation between incumbent presidents getting reelected or not reelected and the economy. I think Gerald Ford and Jimmy Carter are typically held up as the examples of presidents felled by inflation. How worried is the Biden administration and how worried should they be?

Heather: They're very worried when you talk to them on background or off the record. It's definitely something that they're watching very closely. As Trevon was saying, yes, we have a tool box and we sort of know what tools to pull if inflation does go higher. I think what's different this time around is A, we haven't seen inflation anywhere near this level. We are just saw an inflation read of over 5% for the past year. Usually, in the past decade, it's been around 2% or even a little lower some years.

People are not used to this. It's been a long time and memories have faded since the '70s and early '80s. Some people who are young have never really experienced anything like this. Also, we have so many people who are retiring now and they now live on a fixed income. Usually, when you see inflation, you also start to see wages rising. If people are earning more money, they can afford to pay $2 for that apple instead of $1, but if you're on a fixed income, you're obviously not suddenly going to get 5% raise in your monthly earnings. Your income is fixed. I think that dynamic is changing things a lot this time around.

Melissa: Trevon, in terms of thinking about that question of wages and inflation, what's the worst-case possibility here?

Trevon: The worst-case scenario is our wages don't increase or keep in line and we do see significant and persistent inflation, and that would erode the quality of life for people. If you're earning the same amount and prices are increasing, you can afford less and less, and so your standard of living is declining. We typically do see wage increases with inflation to keep everything up to inflation.

To the point about retirement, some of the retirement accounts that we have, for example, Social Security payments, are pegged to inflation. The estimates of inflation there is a little bit of a shield for some people, but the problem is when you peg those benefits to inflation, you also now need to increase the government's resources to keep those paychecks to be pegged to inflation.

Melissa: Increase government resources. That sounds like taxes. Trevon Logan is a professor of economics at the Ohio State University, and Heather Long is an economics correspondent for The Washington Post. Thank you both for being here.

Heather: Thanks, Melissa.

Trevon: Thank you.

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