By now, many of you have noticed higher prices, be it the humble hamburger at McDonald's, gas at the pump, to even mid level restaurant menus, as they steadily erode our budgets, And, on the larger scale those tasked with keeping inflation at bay are finding a barrage of suggestions, criticisms, observations and even sly commentary.
Reaching consensus, or even understanding what the future might bring to both the US economy, as well as consumers. And, for those that are depression era survivors, a shrinking population, the days ahead may seem less daunting as memories of high prices and hoarding come to mind, but for Generation Xers, those skills and methods are unknown.
Some have opined, such as Chicago Booth School of Business, Michael Weber that "Central banks and shoppers are living, to some extent, in different worlds," and their focus is different and are "forming expectations on the basis of those."
With uncertainties about returning to the offices of pre pandemic America, this is another worry for those burdened with school debt and mortgage payments, especially those living in large urban areas, dealing with survival in a changed America where 7 million jobs were lost due to Covid.
Recent reports have showed, however, that some consumers, after months of lockdowns, are not complaining of higher restaurant costs, so overjoyed they are at being able to gout and dine, and socialize with others.
On Wall Street as well as Main Street the key word is "transitory, but The New York Times noted recently that the "word is losing traction." But, it also stated that "inflation is running at a 13 year high" and while the White House claims that the rise in inflation is temporary, others are not so sure.
Jamie Dimon of JP Morgan Chase said recently, to the Times, that it's " a little worse than the Fed thinks"; still others say that the time has come to accept a higher level of inflation, beyond the targeted and mandated 2 percent that the Federal Reserve has, and in that respect a 2014 survey did cite that income inequality, the new normal has forced economists to take a long range view.
Consumer spending, the driver of the American economy hit the headlines with an increase of 5.4 percent, according to the Consumer Price Index, a feat in and of itself.
Weber notes, while seeing higher prices, and with some complaining, many in America aren't watching the inflation ball; and in fact, he and others "surveyed more than 20,000 Americans in 2018 and asked what they expected the Fed's inflation goal to be.Fewer than 20 percent answerd correctly, while a whopping 40 percent thought that the Fed was targeting 10 percent inflation."
The correct answer is 2 percent, a standard in an undergraduate macroeconomics course, as part of the twinned mandate of the Federal Reserve, the other being full employment.
Spreading out a bit, is Avraham Shama writing in an opinion piece for The Hill said that setting a “monetary or fiscal policy based on it could hurt the economy” and as a contributing factor to understanding the dilemma points to the pandemic both pre and post as the tipping point for understanding both the process, and his warning.
If the temptation is there, then changes in consumer behavior from dining out, plane travel and moving to the burbs are in order, then taking a look at Federal Reserve policy points and reliance on judgement, and an ability to change course might be the better course.
Tacking somewhat to the right is Axios who gives some sly digs to the Biden Administration and also Fed Chair Jerome Powell, and sees him as both indecisive and naïve in his handling of inflation, and hints at other matters, in its short estimation, and characteristic bullet points, seeing him as not knowing where to look next for the future, which it labels as “evolving.”
From the corporate side there is Conagra Brands and Pepsico, says Bloomberg who have “signaled that higher costs will be more than a blip,” and that costs “from raw ingredients to labor to remain substantially more expensive in coming months.”
Just behind these words consumers can expect the higher costs to be passed onto them. The bottom line as it were.
While there has been some relief in the used car market, it’s not hard to reckon that higher prices, or shrinking packages, and deceptive packaging to be the norm, so that the consumer may think that they are getting more than they get..
In their Dealbook analysis the Times offered some opinions that give some weight to the future, with most saying we have to deal with it, to others saying that accepting a higher level of inflation may be the course, with others using a historical trajectory to give some sense of direction towards policy action.
Austan Goolsbee, professor of economics also of the Booth School of Business favors temporary, and is a believer in the “potential” of the economy, or in other words what it sustains at full employment, citing the 1960s as the fulcrum for overheating.
He also sees the US as closer to the 1990s through the mid 2000s and “?none of which ignited sustained inflation despite unemployment rates well below today’s.
Add to his optimism a gain in jobs, then his opine takes the fright out of some observers.
Going in an opposite direction was Jason Furman, a professor of economic policy at Harvard University who questions the long term who sees inflation longer term than others, but sees a it settling “down at something more like 2.5 to 3 percent, but cautions against Fed overreaction, causing a recession, and subsequent market adjustment to right the ship, but notes that economic hurts could occur.
If this all seems too wonky for you, then consider that an increase in job and wage gains is a good event, and indexing can help for those on the lower wage scale; some economists and academics see signs of 7 percent for the 3rd quarter, and as demands shift, a downward wave of 3.3 percent in the second quarter of 2022, reported the Wall Street Journal, with Treasuries yielding downward, trends could be far worse, with caution being our watchword.
Updated 13 August at 4:15 p.m. CDT
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