Last month, inflation rose at the fastest pace in almost 13 years. Consumer prices rose to the highest rates since September 2008, indicating soaring demand and decreased supply.
The cost of many consumer goods has risen since the pandemic. Air fares are up 9.6%, furniture is up 7.8% and daily staples, such as coffee, are up 8.1%. Several factors are driving the higher prices of goods this Spring. Americans have been spending less and saving more, with many having extra money due to stimulus checks. There has been a shift in consumption patterns from retail stores to ordering online, which has resulted in added stress to supply chains. Distribution channels are facing major challenges due to the pandemic, especially shortages in truck drivers and shipping containers being returned to China.
Furthermore, demand has increased. However, supply has decreased due to the pandemic affecting manufacturing, farming and shipping. “We continue to see popular grocery items changing prices locally more than they change prices nationally,” said Phil Tedesco, vice president for retail intelligent analytics at NielsenIQ.“It seems likely that supply chain and logistics are the cause of localized price pressures, rather than national price increases.”
The Federal Reserve has been keeping interest rates at low levels. However, if inflation rises above its 2 per cent target, central bank officials may vote to increase their benchmark borrowing rate. This would result in higher lending costs and price raises on all consumer goods, such as mortgages and cars.
Experts believe that this is part of the recovery process and that the prices rises will slow down later in the year. White House economists are monitoring the current spike in inflation, with expectations of the rate increase settling to a slower and steadier pace. “We think the likeliest outlook over the next several months is for inflation to rise modestly… and to fade back to a lower pace thereafter as actual inflation begins to run more in line with longer-run expectations,” said Jared Bernstein, a member of the Council of Economic Advisers.