Inflation Looks to Be Not so Transitory As Price Hikes Continue

Procter & Gamble became the latest company to announce it will raise its prices in September to respond to higher commodity costs, joining consumer giants like Kimberly-Clark, Smuckers, Coca-Cola and a host of others.

Quote by Carl Chang  |  Axios

April 21, 2021

Why it matters: Fed chair Jerome Powell and other top economists have all but decreed that inflation is anchored and will not rise materially going forward, but a consistent drumbeat of price hikes from major companies, consumer reports and market data suggest the world may not be going along with their conclusion.

What’s happening: Major brands have rolled out price hikes consistently over the course of the year, along with notable increases in the price of cars, construction, furniture and the cost of gas that are starting to show signs of staying power.

• The supply chain disruption that has pushed U.S. automakers like Ford and GM to close plants this year and pushed up prices for semiconductors and some other products already has lasted longer than expected and currently has no end in sight as producers struggle with production shortfalls.

What we’re hearing: The current atmosphere of rising prices “could sustain for some time, quite frankly,” Carl Chang, a regional director at the San Francisco Fed and CEO of Kairos Investment Management, tells Axios. “I don’t think it’s a 6-month or 12-month kind of thing.”

• “Unless the Fed decides to take some major action I think inflation could run a little higher than certainly we’ve been accustomed to over the last decade.”

Take a look around: Economists also are beginning to see upward pressure on wages, as more companies are finding workers unwilling to accept ultra-low wages and the demand for white-collar positions intensifies.

• Further, with OPEC+ holding its grip on oil supply, energy prices are expected to remain elevated and Chang says he expects supply chain disruptions to continue “over the next several years.”

By the numbers: The latest reading of prices for both consumers and businesses showed sharp increases last month, with the consumer price index seeing the largest increase since August 2018 and the producer price index posting the biggest jump in almost a decade.

• The New York Fed’s survey of consumers showed Americans expect inflation to rise by the most over a one- and three-year horizon since 2014 and market gauges of 5- and 10-year inflation expectations are holding near their highest levels since 2008 and 2013, respectively.
• “All of our distributors have indicated that price increases are coming,” Don Katzenberger, CEO of S&K Roofing, Siding and Windows, told Bloomberg in late February.

The bottom line: None of this looks all that transitory.

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