The big news this week is that inflation is up, big time. Year-over-year CPI inflation is at 5.4%. This vindicates the fears that economists like Larry Summers have been voicing for a while now. I blogged intensively on this issue in the past, for instance here. On one level, having some inflation can be a good thing, as it erodes the real value of debt and therefore alleviates at least in part the burden faced by debtors (not least the Federal government): it's a form of default. Indeed, some of the excess inflation that we are witnessing is the result of an avowed policy goal of the FED to favor growth at the cost of a little overheating. However, inflation dynamics can quickly get out of control. 5.4% seems like more than what the FED had been ready to accept, so we had better hope that they know what they are doing and can rein it in in time. If the bout of inflation that we are witnessing forces the FED to raise interest rates, this may actually defeat the purpose of having moderate inflation - namely the cost of debt may rise rather than decline. I blogged about this too, in the more distant past... back in August of 2020. People then thought I was a bit crazy to be worrying about rising interest rates (we were still at the height of the pandemic). Now, I am not sure this view is so far outside the mainstream...