Inflation in America is running at its fastest pace since 1982 and the Federal Reserve is set to raise interest rates
Alex Tanzi
February 15 2022
US consumers don’t expect red-hot inflation levels to last in the long term.
That’s the takeaway from the January consumer survey from Federal Reserve Bank of New York, which showed that the median one-year-ahead inflation expectations fell for the first time since October 2020, to 5.8pc.
The outlook over three years dropped even more sharply, and the decline was broad-based across age, education and income.
In a separate analysis of data from the survey and from the University of Michigan’s sentiment index, New York Fed economists concluded that consumers seem to recognize the unusual nature of the current bout of high inflation.
“This result suggests that while consumers are highly attuned to current inflation news in updating their short-term inflation expectations, they are taking less signal than before the pandemic from the recent sharp movements in realised inflation when revising their three-year-ahead expectations,” the economists said in a blog post.
All products and services surveyed by the New York Fed declined in January, including the year-ahead price changes for food, rent, gas, medical care, college education and gold.
The survey also showed that the median households is expecting one-year-ahead earnings growth to rise by 3pc, the same as last month. Last year, an average gain of 2.6pc was expected.
The US central bank’s next policy meeting is set for March 15-16, and some economists are calling on the Federal Reserve to make an aggressive, half-point increase so as to signal its determination to contain inf lation which has risen at its fastest pace since 1982
Rising Wages Could Not Keep Pace With Rising Prices In Arizona In 2021
By Emily Sacia
WASHINGTON – Wages rose 5.3% in the Phoenix metro area last year, but prices rose almost twice as fast, with rising fuel and food prices eroding workers’ buying power despite a surging economy.
The situation in Arizona mirrored the U.S., where an average 5% increase in salary and wages was outstripped by a 7% rise in the consumer price index. But the increases in the Phoenix-Mesa-Scottsdale area were bigger in both instances, and the gap between income and price growth was wider, with the Valley seeing a 9.7% rise in the cost of goods and services.
“People can’t buy as much with the given amount of income once prices have risen,” despite the increase in wages, said George Hammond, director of the Economic and Business Research Center at the University of Arizona. “And that’s a bad thing, there’s no getting around that.”
The Bureau of Labor Statistics said the 7% rise in consumer prices nationally from December 2020 to December 2021 was the highest in 40 years. Increases came across the board, with prices going up on everything from food to housing to clothing. The biggest increases came in the price of home fuel, used cars and gasoline, which was up 49% nationwide for the year.
Against those increases, the bureau also reported rising wages, with the biggest gains being made in industries hardest hit by the COVID-19 pandemic, including those working in nursing and residential care facilities, and transportation and material moving.
Jobs in the leisure and hospitality industries led the way, with wages increasing an average of 8.9% nationally over the year. In that category, accommodation and food services workers saw their pay rise 9.3%.
Salary breakdown was not available at the state level, but experts say Arizona likely saw increased pay in hospitality and health care jobs, two important parts of the state’s economy.
Dennis Hoffman, director of the Seidman Research Institute and professor of economics at Arizona State University, said hospitality industry workers were overdue for a pay raise. But that, along with ongoing supply chain problems, are contributing to the rise in prices.
“Low-skilled jobs have been underpaid for years and it’s time it got fixed,” Hoffman said. “So along with that is going to come some temporary inflation as we adjust those wages up.”
Garrick Taylor, spokesperson for the Arizona Chamber of Commerce and Industry, said the surge in demand for products as the coronavirus pandemic eased has been met by a labor shortage and supply chain disruptions that suppressed supply of those goods. That fuels inflation.
“Wage growth in Arizona is ahead of the national average,” Taylor said. “But it is still lagging the record high inflation rates.”
But workers are not the only ones feeling the pain of inflation, he said.
“Employers are often in the position of playing catch up when it comes to inflation, but employers are also not immune to inflation,” Taylor said. “The inputs that they need, for example in manufacturing, are also increasing in price.”
Taylor said there are some moves the Biden administration “might be able to do around the edges” to ease inflation on items like gasoline, but nothing consumers will likely see immediately. He said the biggest challenge will be to “break through these supply chain disruptions that are putting upward pressure on prices.”
“The Biden administration should resist the calls from some corners to flood the economy once again with more stimulus dollars, that would only exacerbate this issue of too many dollars chasing too few goods,” Taylor said.
Hammond said part of the problem is a surge in demand driven by “huge amounts of federal income support” during the depths of the pandemic. He said consumers grappling with inflation can wait for price increases to slow, but that is not always an option when it comes to goods and services like gasoline, transportation and housing.
“People will – where they can – hold off on buying certain goods. They will wait for price increases to stop or slow down or actually for prices to come back down,” Hammond said.
Hammond thinks the current inflation is a short-term phenomenon. But when it ends depends on a number of factors.
“Nobody knows” when inflation may cool, he said. “It depends on how fast the Federal Reserve raises interest rates, it depends on how fast the supply chain disruptions are really alleviated, it depends on the pandemic, it depends on the labor market.”
Hoffman agreed that the current imbalance between wage and price increases is not likely to be a long-term problem.
“I think we are going to see by the year end, that the rate of inflation year-over-year will migrate down,” Hoffman said. “And that will bring those price increases back in line with wage increases.”
No comments:
Post a Comment