The Economist May 15th 2021 |Finance & economics|Inflation|”Jump scare?” “What an inflation surprise tells you about America’s reopening.”
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Figure from the U.S. Bureau of Labor Statistics 18MAY2021 data.bls.gov
Summary provided by 2244
As it turns out low oil prices in 2020 distort measures of United States consumer prices, when compared as % change year over year for a month, but even when stripping out oil and food prices April consumer prices appear up 0.9%. Such a monthly rise is the highest change since the 1980s. But we are in a period of worry and one month hardly constitutes a trend upwards but investors are currently jumping at each new indicator like last week’s job growth as only 260,000 versus 1,000,000 predicted. As of now Jerome Powell, head of the Federal Reserve, has been quoted as saying we are “’not even thinking about thinking’ about raising rates.” At this point, there are numerous reasons to believe this is a blip and not a trend of increasing inflation.
So, what factors might be driving a blip in prices or a trend in price increases?
1) Stimulus money has hit bank accounts, with vaccination more consumers are able to get out and buy goods and services. Credit spending is up according to Goldman Sachs.
2) Some companies, especially smaller ones, have not forecasted well and are finding themselves short of inventory. Bigger companies were likely “better able to forecast the coming spending binge, or because their supply chains are more diversified.” Indeed, “inventories, relative to revenue, have plunged to all-time lows, suggesting that shops are running out of things.”
3) New car production has been hit by chip shortages and combined with the urge to travel by car has sent used-car prices up by 10%.
4) Call for more inventory starts the delivery process and from overseas, notably China, there is a container shortage and prices for shipping have reportedly tripled. Transit from point-of-origin in China takes a few weeks to America.
5) Some firms understanding that demand is likely to continue may be raising prices having been unable to do so during the pandemic.
6) Making matters worse, employers “are struggling to recruit enough staff.” The May 7th reports “showed that America added just 260,000 jobs, well below the 1M or so that many economists had expected.”
7) For inflation to trend these factors must continue “but the present phase could reasonably be regarded as temporary, as suppliers adjust to shifting consumer tastes.” There are data suggesting that leading “firms quickly found new ways to source material and bottlenecks eased.”
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