Why inflation could linger

So why worry about inflation lingering? First, we don’t actually know when all of these supply chain problems are going to straighten themselves out. The world still doesn’t have enough semiconductors, and while there are some signs that the used car market is cooling off, analysts don’t expect the car market to get back to normal until some time in 2022. There is also a severe global shipping crunch that’s driven up the cost of imports, which experts are concerned could drive up the cost of holiday shopping. (The situation in the world’s ports is so bad that Home Depot literally contracted its own boat to start ferrying merchandise to the U.S.)

Advertisement

Second, while some inflationary forces might be cooling off a bit, others could soon heat up. Rents, for instance, have been rising much more slowly than normal since the pandemic began. But, as the New York Times explained this week, they could soon start escalating again. Since housing makes up a big chunk of the consumer price index, that could have a major impact on inflation. Wages are another potential issue. Despite the complaints of business owners who’ve had trouble staffing up, the cost of hiring doesn’t seem to have been a big factor in inflation so far. But if companies continue to raise wages, you might see them pass more of the expense onto customers (that would, of course, be a fine trade for workers in a lot of lower-wage service industries).

Even if inflation starts to slow down considerably, the final number for 2021 could end up fairly high by recent standards. Here’s some sample math: Let’s say inflation fell back down to a 3 percent annual rate for the back half of the year, about one-third the pace we’ve seen the last three months. In that case, the CPI would still end the year up more than 5 percent (the Federal Reserve’s official target, which it has usually stayed below, is 2 percent).

Advertisement

Join the conversation as a VIP Member

Trending on HotAir Videos

Advertisement
Advertisement
Advertisement