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One theory for what could keep inflation under control is price controls

DANIELLE KURTZLEBEN, HOST:

Inflation has eased, but prices for some goods and services remain stubbornly high. And that means many Americans are still feeling real economic pain. President Biden has taken a piecemeal approach with an array of policies aimed at cutting specific costs, and he attacks former President Trump's plan to institute a blanket 10% tariff. As NPR has reported, that tariff may indeed prove inflationary. Trump, for his part, wants to exempt tips from being taxed, and he wants to drive gas prices down by pushing America's already high oil production even higher. Is that the best they can do? And why is inflation still dogging the American consumer? Isabella Weber is an associate professor of economics at the University of Massachusetts Amherst, and she joins us now. Welcome to the program.

ISABELLA WEBER: Thanks so much for having me.

KURTZLEBEN: Now, there's a lot of debate about the causes of recent inflation. In one paper, you argued that sellers' inflation was a major culprit post COVID. And in fact, you briefed the U.S. Federal Trade Commission on the topic earlier this year. I wonder if you could start by telling us, what is sellers' inflation?

WEBER: So the basic notion of sellers' inflation is to say that inflation can also be driven by firms and not only by workers asking for higher wages. More specifically, it's the idea that there have been major supply shocks, and as a result of this, price spikes at the beginning of the value chain, so the prices of energy, the prices of shipping, the price of commodities have been and spiraling upward for a time as a result of the pandemic and the Russian war in Ukraine. And what we have seen is that the corporate sector has been in a very good position to pass on these cost increases to consumers in a way that protects profit margins.

The result of this is that a local supply constraint is translated into a generalized form of inflation by this pricing behavior of firms, which is what we are calling sellers' inflation. And in fact, corporate leaders have often been quite explicit that these kind shocks have presented windows of opportunity for price hikes and that now is the time to take price, which is the language that they like to use.

KURTZLEBEN: Now, the tools you've advocated to curb inflation are different from what many other economists have advocated. You've suggested that strategic price controls could help tame inflation. I wonder if you could briefly tell us how that would work.

WEBER: Yeah. So first of all, price controls are an emergency measure that you really only want to use if you have not done any preparedness. And if we ask a question, what are the big lessons of last years of inflation? - I would say that basically we have seen that the prices in systemically significant sectors - in essential sectors, like energy, like food, like shipping - have exploded, and that as a result of this, a relatively small number of firms that dominate these sectors have reaped absolutely record profits. And this means that there's very immediate conflict of interest between the firms that are running, managing and providing the goods and services in these sectors and the interests of the public of overall price stability.

This is why I would argue that now we have to acknowledge that some sectors are too essential to fail, and we have to ask the question, what happens to supply, what happens to prices these moments of shocks, in these moments of emergencies? Because simply leaving this to the firms that run these sectors will not necessarily result in the outcome that is desirable from the perspective of economic stability and also from the perspective of the stability of our democracies, because inflation really matters for the rise of far-right parties, as we just saw in the recent European election.

KURTZLEBEN: Well, you mentioned that price controls are an emergency tool. Right now in the U.S., inflation is still higher than policymakers want it, but it has cooled down a bit. So is right now not the right time, as you would see it, for price controls?

WEBER: The one area where I would say we should still really have a serious conversation about prices is food staples, where we have seen prices overall going up quite dramatically. We have seen that in recent months, the input costs for a lot of the processed food has been falling, which means that there is room for price decreases. And I'm here not talking about generalized deflation, but I'm talking about the prices of basic food items that people need in their daily lives. And in fact, we have a situation where the grocery sector is incredibly concentrated, which means that one could actually work with the grocery chains to come up with a solution to ensure the affordability of a basket of basic food items.

But I would also say that for the food question, we have to take not only a domestic perspective, but we have to take an international perspective, because if we see food insecurity go up in a rich country like the United States, we are talking about hunger in the rest of the world. We need multilayered buffer stock systems that operate on a national, international and regional levels, and that would basically be modeled on the idea of the strategic petroleum reserve where these buffer stock systems buys and stores, let's say, grain, or as already is the case in the U.S. right now, buys and stores oil at a time where the prices are low or falling and then releases that stored good when the prices start picking up.

KURTZLEBEN: That's Isabella Weber. She's an associate professor of economics at the University of Massachusetts Amherst. Isabella, thank you so much.

WEBER: Thank you so much for having me. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

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Danielle Kurtzleben is a political correspondent assigned to NPR's Washington Desk. She appears on NPR shows, writes for the web, and is a regular on The NPR Politics Podcast. She is covering the 2020 presidential election, with particular focuses on on economic policy and gender politics.