Inflation greets economic expansion

May 14, 2021  | 4 min  | Ep4639

Economists have been looking for any indication of rising inflation in all of these reports. As the economy begins to heat up it’s causing indigestion as more than one analyst as they sound the alarm sound over the loss of purchasing power.

Peter Tubbs has more.

Household inflation rose by the largest percentage since 2008 as consumers return to the marketplace only to find the products they want in short supply. The 4.2 in-crease over the last 12 months follows a smaller increase in March. 
The inflation numbers may be exaggerated due to the baseline numbers from a year ago are from the bottom of the economic contraction caused by COVID-19 shut-downs.
The Consumer Price Index, which is heavily weighted towards shelter, can move dramatically even with small changed in the market for both purchases and rent-als. More than 40 percent of the index is related to housing.
Food is the second biggest component, which is weighted at 15 percent. 
The index for used cars and trucks led the way with a 10 percent climb in April, the largest jump since the series began in 1953. Automakers have slowed production due to a shortage of microchips, sending some new car buyers in-to the used car market. The price jump for autos accounts for one third of the overall increase in inflation.
The cost of shelter, airline fares and recreation all had a large influence on the Price Index. The energy por-tion of the index did not factor in the increase in gas prices due to a pipeline shutdown in the Southeast.
The food index rose .4 percent in April, following a similar rise in March. All six major grocery store sectors experienced increases in the last month. Fruits and vegeta-bles saw the biggest jump, followed by dairy and meats. Prices for food eaten out of the home also rose 3.8 percent as restaurant traffic picked up. 
Energy prices fell 2.4% in April, which dampened the sector’s 25 percent climb over the last 12 months, the largest increase in a decade. Gasoline is up 50 percent over the last 12 months as driving habits return to their pre-pandemic norms. This week, AAA reported the average price of a gallon of gas cost $3, surpassing the mark for the first time in six years. Analysts expect the climb to contin-ue. 
The price of diesel fuel has increased 30 percent since its pandemic recession low 12 months ago, but is the same price as April 2019. 
The costs for shelter rose 2.1 percent over the last 12 months. Housing, both rental and owner occupied, con-stitute the largest segment of the price index and household budgets. Home building of all kinds has lagged population growth in the United States since the 2007 burst of the housing bubble, and current building projects are hampered by a spike in lumber prices
The Federal Reserve believes that the increase in prices will slow in 2022 and producers catch up to consum-er demand, and COVID related supply chain snags are smoothed.
Richard Clarida, Vice Chair, Board of Governors of the Federal Reserve System: 12:20 “It may take longer to reo-pen a $20 Trillion dollar economy than it did to shut it down. When we shut down big parts of the economy to deal with the virus, that put substantial, but largely transitory pressure on the price level. And reopening the economy is putting some pressure on the price level, and we will need to be at-tuned to the data and following it closely.”
For Market to Market, I’m Peter Tubbs.

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