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Hi, everyone! I’m Lora Kelley, and I am a new writer for the Daily. I’m thrilled to be working with Tom Nichols and the team to bring you the newsletter. I joined The Atlantic in an interesting week for the economy—after two years of runaway inflation, which led the Federal Reserve to crank up interest rates, the government announced on Wednesday that it would be pressing pause on its hikes for now. Today I explore a question that’s dividing economists: Whose fault is inflation, anyway—and why does it matter?

First, here are three new stories from The Atlantic:

The fake poor bride

Car-rental companies are ruining EVs.

The choice the Philippines didn’t want to make

America can take a breath: Inflation is finally cooling off. It’s now hovering at about 4 percent, according to Consumer Price Index (CPI) data released earlier this week, down from the 9.1 percent peak in June of last year. But the Fed is saying that it would like inflation to be closer to 2 percent, and that it may raise interest rates again in the future to try to get the country there. Now that inflation has abated (for the moment), discussions have turned to how we got here.

Fed Chair Jerome Powell recently said that rising wages were not the principal driver of inflation. As economists, the media, and laypeople alike try to figure out whom to blame instead, fingers are pointing at the consumers who started spending large amounts of saved dollars and stimulus checks in 2020; at the corporations that have seen juicy profit margins after raising their prices; and, in Sweden, even at … Beyoncé?

Trying to understand the factors that fueled inflation is important, because whom we blame for inflation also shapes what we do about it. If inflation is caused primarily by overheated consumer demand, then it makes sense for the Fed to quell spending by hiking interest rates. But if corporations, rather than consumers, are driving inflation by raising their prices, then other tools may make more sense.

One conventional explanation is that widespread consumer spending started in 2020 and persisted in the years that followed, causing demand to explode and prices to spike. Some economists have called the influx of post-lockdown spending on goods and travel “revenge spending,” and recent data show that it is receding after two years.

The Fed has consistently raised interest rates in its past 10 meetings in part to get consumers to stop spending money—and so far, the hikes seem to be working. “The Fed has done the thing you would expect the Fed to do,” Chris Conlon, an economist at NYU, told me. “Right now, it looks like raising rates is starting to cool demand and temper expectations.” (Pulling this lever is imprecise, however, and can cause pain: High interest rates have triggered layoffs, especially in tech, and made it harder for a lot of people to afford big-ticket purchases such as houses and cars.)

Although CPI data show clear patterns in consumer spending and demand, another explanation, that corporations are fueling inflation by raising prices in order to increase profits, has been gaining steam in recent months. Some economists are taking a closer look at the idea that corporations’ profit margins could be playing a role in keeping inflation high—especially after recent earnings calls in which corporations reported that profits are up even as they are selling fewer goods.

Isabella Weber, an economist at the University of Massachusetts at Amherst, argues that a host of geopolitical factors have provided “cover” for firms to raise prices. Weber refers to the phenomenon as “sellers’ inflation,” but others call this “greedflation,” “excuseflation,” and “profit-led inflation.” Companies wrestled back pricing power earlier in the pandemic—and consumers, seeing high prices at the gas station and everywhere else, came to expect higher prices. Now, some ask, are companies doing more than simply responding to costs, and instead just ramping up prices to pad their margins—and in the process, feeding inflation like a pandemic baker feeding sourdough starter?

“If you believe that big corporations are the ones who are pushing up prices,” Rakeen Mabud, the chief economist at the progressive nonprofit Groundwork Collaborative, told me, “then there are a lot more tools in our toolbox” to address the issue. “We can go way beyond the Fed,” she added. Those tools, she told me, include tax policies that target excess profits or incentivize productive investment in firms. “We’re really seeing a big rethink of some orthodox understandings of inflation and its causes,” she said.

Conlon, however, is interested in possible factors beyond greed that may be pushing companies to raise prices. “Strong demand will also generate rising prices, rising profits, higher output,” he told me. He and his colleagues recently published a paper that found that, from 2018 to 2022, there was no correlation between the companies whose markups have risen the most and the industries in which prices have risen the quickest.

The exact causes and dynamics of our current inflationary moment may take time to unravel—Conlon predicted that in a few years, we may have more information about how companies behaved these past few years. These data will be worth a close look, especially if shocks to the economy continue apace in years to come. It’s become a bit of a cliché to say that we are living in unprecedented times. But a rash of recent, intersecting crises—supply-chain snarls, the war in Ukraine, elevated gas prices, bird flu—did scramble consumer spending, leading companies to raise prices over the past few years. Things may stay strange. Understanding what happened could inform how we respond to future shocks.

I will leave you with some good news, after all this talk of disaster: Global inflation is not all Beyoncé’s fault, though Swedish economists said this week that her Renaissance tour in Stockholm caused a surge in local prices—“It’s quite astonishing for a single event,” one economist told the Financial Times. One person, even an amazing one, can’t single-handedly cause inflation. But her music can probably alleviate some of the pain of thinking through all of this.

Today’s News

After a multiyear investigation into George Floyd’s murder, the Justice Department released a report finding frequent instances of excessive force by Minneapolis police officers, and unlawful discrimination against Black and Native American people.

The gunman who killed 11 people at Pittsburgh’s Tree of Life synagogue in 2018 was convicted by a federal jury.

Several federal agencies, including the U.S. Department of Energy, were affected by a global hacking campaign, according to officials.

Dispatches

The Books Briefing: Gal Beckerman reflects on the powerful weirdness of Cormac McCarthy.

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P.S.

I know I cannot compete with Tom Nichols when it comes to 1980s movie references. For everyone’s sake, I will not try. But I did happen to watch a film from 1987 during my time off between jobs that I liked very much. The Éric Rohmer movie, whose title translates from French to Boyfriends and Girlfriends, is a New Wave romantic comedy about, yes, boyfriends and girlfriends. But to my pleasant surprise, it was also about jobs, and how a new class of suburban young people was fitting work into their lives. Against a backdrop of pools and excellent outfits, the characters discuss bureaucracy, commuting into Paris, and having or not having a boss. I think a lot about “the future of work,” so it was fun to dip into the past of work too.

Isabel Fattal contributed to this newsletter.