Earlier this month, the Bureau of Labor Statistics released a different snapshot of inflation in May. That measure of a different group of goods rose by 5 percent compared with a year ago, the largest increase since the Great Recession. That index tends to be higher than the figures in Friday’s release, which is the inflation benchmark watched closely by the Federal Reserve.
Personal income dipped 2 percent in May compared to April. That drop was largely due to the fact that the vast majority of stimulus checks from the American Rescue Plan, which passed in March, had already hit Americans’ bank accounts.
For months, officials from the Federal Reserve and White House have said inflation will continue to climb. And they point to a few reasons why.
Some of the price increases, they say, are driven by a fundamental mismatch in supply and demand. Supply chains that were effectively shut down by the pandemic need time to ramp back up to full speed. Meanwhile, demand for goods and services — like airline tickets, furniture or rental cars — is rebounding fast as more Americans become vaccinated and unleash pent-up savings. Shortages of workers, including in industries like retail, are complicating the picture even further.
Economists expect inflation figures to taper off in the year to come. That’s in part because the super-low readings from the pandemic’s early days, when the economy was shut down and prices fell, are gradually shifting out of the calculation.
The Fed is urging patience, saying it will take time to fully assess whether inflation is temporary, or if price spikes will stick and reverberate through the entire economy. Last week, the Fed estimated that inflation will climb to 3.4 percent this year, before settling back down nearer to the central bank’s 2 percent annual target in 2022 and 2023.
Republicans, however, argue that the Fed is setting itself up to be behind the curve when it comes to reigning in inflation by raising interest rates. The GOP says that trillions of dollars of stimulus spending, combined with low interest rates and the Fed’s other economic supports, risk overheating and endangering the economy.
Friday’s data release showed that spending on services is inching upward. However, economists are keeping a close eye on how quickly, as Americans reorient their spending away from goods and back toward services over the next few months.
During the pandemic, while many Americans stayed home, people bought up goods like patio furniture and home office equipment. Now, as more widespread vaccine access helps people book long-awaited vacations, buy concert tickets and dine out, economists hope that spending on services will start to rebound, adding momentum to the recovery and giving a boost to service-sector industries still clawing back from the recession.
Fed leaders, urging patience, suggest that economic forces will ease toward the late summer and fall for those in the labor force and for prices. By then, upheaval in supply chains will have had time to settle down. More people will be vaccinated, and most kids will be back in school. Unemployed Americans will have had more time to match with new jobs. Economists expect more workers to enter the labor force this fall, when expanded unemployment benefits expire in September.
“We need to see more data,” Fed Chair Jerome H. Powell said last week. “We need to be a little bit patient. And I do think though, that we’ll be seeing some things coming up in coming months that will inform our thinking.”
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June 25, 2021 at 07:32PM
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Prices rise 3.9 percent annually in May, as policymakers maintain inflation is temporary - The Washington Post
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