Inflation is likely to cool down next year, but is likely to remain much warmer.
Right now, inflation is heating up. The Department of Labor on Friday reported that Consumer prices up 0.8% in November from October, bringing them 6.8% higher than the previous year, marking the largest year-on-year increase since 1982. Part of that was from fuel costs, recently started to slide, but core prices, which exclude food and energy prices to better capture the underlying trend of inflation, were still up 4.9% on the year.
Food and energy are not all that one might want to exclude. For example, about 1.6 percentage points of the base price increase for the year came from the prices of new cars, used cars and trucks. As semiconductor shortages ease and car production picks up again, it doesn’t look like new car prices will rise much, with used car prices likely to drop. Prices of other supply-constrained items, such as furniture and appliances, were also significant contributors to inflation over the past year.
Point out, of course, that those price increases can be attributed to the Federal Reserve the term has now been dropped, “temporary“Not a consolation for someone whose car broke down and needs to buy another one now. Furthermore, dismissing prices that appear to be rising for one reason or another can turn into a trap that discourages people. recognize the severity of inflation until it’s too late. Certainly if we exclude used car prices in an attempt to capture current inflation trends, we’d better exclude them next year if they start to fall.
That said, it would certainly be nice to know what the underlying trend really will be, once the pandemic-related disruptions are over. There is some evidence that this trend will be higher than it was before Covid-19 hit. Prices for core services, which are less affected by congestion than goods, rose 3.4% in November from a year earlier, marking the biggest increase since May 2007. Sure, some of that reflects the price increase during the pandemic- affected services like car rentals, but taking those into account, there still seems to be a shift higher.
Finally, the big determinants of where inflation will go in the future will probably be the continued rise in wages of workers and the success of businesses in moving up labor costs. up for consumers. Considering how workers increase their leverage, it seems Wage pressure will persistand while margins can suffer, companies can raise prices at least to some extent. The recent bout of high inflation may be over soon, but that doesn’t mean the world hasn’t changed.
Write letter for Justin Lahart at firstname.lastname@example.org
Heard the pick-up chart
Copyright © 2021 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8
https://www.wsj.com/articles/inflations-warm-up-act-11639152793?mod=pls_whats_news_us_business_f The Inflation Warming Act – WSJ