Why 5.4% inflation isn’t a reason to panic

The US Consumer Price Index hit its highest point since 2008 today, reporting 5.4% year-over-year inflation and renewing concerns that the US recovery is driving up the cost of living at an unsustainable rate.

But inflation hawks still lack a clear narrative that explains how this high rate will become permanent. The debate over the pace of the US recovery and whether it is overheating the economy is driven by  an unusual set of circumstances—a strange, pandemic driven recession; an unprecedented government response; and a recovery proceeding at different paces in different places.