Below, EPI director of research Josh Bivens offers his insights on today’s release of the Consumer Price Index (CPI) for October, which showed a 6.2% rise compared with a year ago. As Bivens explains, the inflation spike we’ve seen in 2021 is not driven by macroeconomic overheating. Instead, this spike is largely driven by COVID-related factors: a reallocation of spending away from face-to-face services and toward goods combined with supply-chain bottlenecks. Read the full Twitter thread. 

Core inflation up less, at 4.6% y-o-y, but, still a large number. And yet the main determinants of this rise still look to me to not include macroeconomic overheating. 2

— Josh Bivens (@joshbivens_DC) November 10, 2021

The first bit – rising demand for goods – relented in q3, with demand for goods contracting. But supply-chain dysfunctions actually got a bit worse, with real domestic production of motor vehicles somehow falling in the face of huge demand. 4

— Josh Bivens (@joshbivens_DC) November 10, 2021

The ARP relief to individuals boosted personal incomes in 2021 (thru q3) by more than 4%. Even if it was solely responsible for the 2% acceleration in core inflation over that time period (and it obviously wasn’t), this still means families came out ahead. 6

— Josh Bivens (@joshbivens_DC) November 10, 2021

Even if ARP contained “too much” relief in early/mid-2021 (it didn’t), it wouldn’t follow that this means macro policy should become contractionary going forward. Too much or too little, the fiscal impulse from ARP is mostly behind us. 8

— Josh Bivens (@joshbivens_DC) November 10, 2021

All in all, the inflation spike we’ve seen in 2021 was not driven by macro overheating. This spike was largely driven by Covid-related factors: reallocation of spending away from face-to-face services and port shutdowns and other supply-chain snarls. 10

— Josh Bivens (@joshbivens_DC) November 10, 2021

In a perfect world, I’d have hoped 100% had gone to output/employment gains. But we don’t live in a perfect world. Given the constraints in the real world, fiscal relief was the right move in early 2021, and passing the BBBA is the right move today. 12

— Josh Bivens (@joshbivens_DC) November 10, 2021

And, it remains too-early to call for further hard-braking on macro policy. Fiscal policy (again, even with BBB) becomes less expansionary in 2022 and the Fed has already announced the start of tapering. Today’s inflation numbers certainly don’t argue for more than this. 13/13

— Josh Bivens (@joshbivens_DC) November 10, 2021