Will increased costs for vehicles and resorts lower or enhance?

Deborah Widger, of Queens, New York, usually rents a car to drive to the Philadelphia area and visit her parents several times over the summer.

But she says car rental prices have increased 20% to 30% since her last visit, and a three-day weekend rental would cost $ 500.

“I’m taking Amtrak,” says Widger, a retail advisor who has lost her customers to the pandemic and lives on increased unemployment benefits.

Consumer prices rose 4.2% annually in April, the most for 13 years, which begs the question: is it a slip up or a harrowing return to the 1970s?

It’s not just the usual culprit: gasoline. Pump prices are up 50% year over year, but a core inflation figure that excludes volatile energy and food products rose 3% annually, the largest increase in 25 years.

Rising prices for used cars, airfares

Some of the price hikes have been noticeable, especially in an economy that has struggled for years to meet the Federal Reserve’s annual inflation target of 2%. From March to April, used car prices rose by 10%; Airfares 10.2%; Hotel prices 7.6%; Rental car prices 16.2%; Admission to sporting events 10.1%; Household equipment, almost one percentage point; and car insurance, 2.5%.

Again, these are monthly increases.

“That’s remarkable,” said Ian Shepherdson, Pantheon Macroeconomics’ chief economist.

Could interest rates rise again?

The oversized spike raises questions about Fed Chairman Jerome Powell’s belief that the price spike caused by COVID-19 is only temporary. That result would likely keep the central bank’s key interest near zero until 2024 at the earliest.

A more sustained surge in inflation could scare consumers and force the Fed to hike rates sooner, including raising mortgage rates and slowing the recovery from the coronavirus recession.

Many economists side with Powell, arguing that the price jump is a by-product of a reopening economy and should wear off by next year. This quota notes that consumer and business inflation expectations – a critical factor in determining how quickly prices rise – remain stable.

“The economy should return to a more normal level by this year or 2022,” said Bill Adams, senior economist at PNC Financial Services Group.

Others say the price hike could take longer.

“Given the strong upward pressure on prices and wages, we believe this will lead to a prolonged wage price spiral,” Capital Economics economist Paul Ashworth wrote in a statement to clients last week.

83 percent of Americans are somewhat or very concerned about the acceleration in prices. This is according to a Harris poll for the US that was conducted TODAY April 30th through May 2nd. 64 percent of respondents say they find higher prices for groceries and groceries ;; 61% for gasoline; 46% for restaurant meals; 43% for personal care products; and 38% for home appliances.

Widger, a baby boomer, is feeling the higher inflation at more than rental car costs. She ventured back to Target and found that sandals and other simple shoes were up 20% and baseball caps were $ 15, down from $ 10. Instead of losing her usual $ 60 to $ 100, she spent $ 37.

“I haven’t been to a store in 15 months,” she says. “I really had a sticker shock.”

Here’s why prices have gone up so much, and why many economists say the episode is about to fade away.

The big leap

Prices fell last spring as the pandemic caused states to shut down their economies. This increases annual inflation as today’s prices appear high compared to a much lower base. That effect won’t be as pronounced in the fall as energy and other commodity prices began to rise in the second half of last year, Adams says.

New shopping opportunities could remain:Whether it’s ordering dinner or buying more skin products, our shopping habits have changed amid COVID-19

Reopening of the economy

As more Americans get vaccinated, states are lifting restrictions. The US economy should be fully open by summer. People love to travel, says Ashworth, when they “finally use the vacation days they have saved and try to make up for lost time” by driving airfares, hotel prices and rental car prices soaring.

The surge in activity will only last so long, says Adams, resulting in moderate price increases. The cost of goods and services unrelated to the reopening – such as rent, medical care, clothing, and groceries – has increased more modestly over the past month, according to Ashworth and Shepherdson.

Stimulate money

The pent-up demand from Americans for fun activities has been juiced up by a lot of savings. Most people received three rounds of government stimulus checks totaling $ 3,200. They have sacked money by restricting their travel, dining, and other activities over the past year. Households amassed a total of $ 2.4 trillion in excess savings during the pandemic, according to Regions Financial.

That should raise spending – at least for the majority of the people who still have jobs – and push prices even further this year. But it should be a fleeting bump as there likely won’t be another wave of government controls next year, Adams says.

Disruptions in the supply chain

The global economy, including the US, has been hit by growls in the manufacture and delivery of goods ranging from cars and appliances to coffee and smartphones. Customer demand has rebounded, although factories, ports and warehouses remain understaffed due to COVID-19-related illnesses, childcare obligations or social distancing mandates. Shipping containers are piled high at ports. A shortage of computer chips has particularly hampered auto production.

All of this drives up freight costs and consumer prices.

Many economists expect the bottlenecks to improve this year. With increasing vaccinations, the staff in factories and warehouses can return to normal. According to IHS Markit, shipping should improve later this year, lowering the prices of raw materials such as lumber, steel, copper and chemicals.

Labor shortage

Restaurants, hotels, and myriad other businesses are struggling to find workforce as customer demand rises, even with a historically high unemployment rate of 6.1%. Companies say that many unemployed people prefer to receive improved unemployment benefits that in some cases exceed their previous wages. Other Americans are hesitant to find a job during the health crisis, or to care for sick relatives or children doing distance learning at home. Around 4 million people have left working life.

The labor shortage has started to increase wages and benefits. Total compensation for US employees rose 0.9% in the first quarter, the largest increase in more than 13 years. The higher wages could encourage employers to raise prices in order to maintain profit margins.

The effects of the workers crisis:“It’s really frustrating”: labor shortages put more money in employees’ pockets, but it could slow the economy

Unemployment benefits are due to expire by September, says Adams. If vaccinations increase and schools reopen, more people will go back to work, which will reduce wage pressures.

Inflation expectations

The main reason strong inflation is unlikely to persist is because the public expects price increases to remain modest over the long term, says Joseph LaVorgna, America’s chief economist for research firm Natixis. This is mainly due to forces such as reduced online shopping and the globally networked economy, which have been curbing inflation for many years.

Otherwise, higher prices would cause consumers to ask for bigger hikes and bigger hikes would cause firms to hike prices, creating a wage price spiral.

What if it’s not so temporary?

Some economists propose alternative scenarios that could drive up wages and prices over time.

Supply chain ties, for example, could last until next year. “Given the prevalence of these global bottlenecks, we would be very surprised if they faded within a few months,” says Ashworth.

Barclays says slower overseas vaccinations could “hold the disruptions in place longer than expected”.

Prices for services like air travel and hotel stays are still below pre-pandemic levels, but a surge in pent-up demand could push them up, Ashworth says.

While many people are likely to be back in work, about half of those who left the country have retired, according to Ashworth, potentially limiting the extent to which returning workers will suppress wage increases.

Measurements of inflation expectations – for certain bond prices and surveys – have increased in recent months, Ashworth says. “We wouldn’t be surprised if real inflation continued to rise,” he says. “The Fed would be foolish to have too much faith in expectations that are well anchored.”

Most of those interviewed by Harris said they noticed higher prices, especially for food and gasoline, despite Labor’s consumer price index showing modest increases in the cost of groceries at home over the past year. Although gasoline prices have increased 50% annually, they have decreased slightly in the last month.

Melanie Whitfield, 46, of Orlando, Fla., Says she spent $ 200 every two weeks on her and her husband at the grocery store, up from $ 150 a month or two ago.

“It absolutely costs me more and my income is not growing nearly as much,” she says. She buys cheaper generics and frozen foods to save.

Kay Fuhler, 62, of Toney, Alabama, says pump prices have increased from about $ 2 per gallon to $ 2.89 in the past few months. Instead of heading to South Florida for her summer vacation, she plans to head to East Tennessee. She stopped plans to buy new patio furniture.

When asked if higher inflation is a problem, she says, “It is if it goes on.”

Comments are closed.