Man Inflating Dollar Balloon

Inflation escalated during the month of June to reach a YOY increase of 5.4% (the highest since 2008) as consumer demand drove up prices for cars, plane tickets, and other goods.

The increase minus food and energy was 4.5% and the increase from May to June was just under 1% (the highest month-to-month increase since 2008).

Prices for used vehicles surged more than 10% from May to June, representing one-third of the overall increase.

According to economist Richard F. Moody, these figures are a direct result of increased demand for goods and services not available or desired during the pandemic; this includes air travel, rental cars, hotels, entertainment, and recreation.

“Demand is coming back very rapidly, and businesses are normalizing prices in the sense that they are making up for declines” suffered during the past year and a half. Also contributing to inflation are supply shortages (primarily semiconductor chips), supply chain bottlenecks, and increased shipping costs, added Moody.

Occurring simultaneously with inflation is a demand from employers for increased wages and benefits that is obtainable due to a post-pandemic phenomenon some have called a “hiring crisis.”

Unfortunately this crisis has produced higher costs for consumers as businesses make up for increased labor percentages by raising prices. As reported by The Wall Street Journal, nearly 50% of small businesses raised prices during the month of June (the highest since 1981).

Ryan L. Sumner, owner of a photography business in Charlotte, North Carolina, told reporters he raised prices in February by 20%. It was the first time he had raised prices in more than a decade.

“One of the things we’re looking at is limiting availability…because it’s been a lot for a small firm to handle,” says Sumner. “Where we’re at is, we either have to raise prices or add staff – or both.”

The big question for economists moving forward is how long the post-pandemic inflation surge will last. Most projections see inflation decreasing to 4% this December and subsiding to 2% over the next 2 years, though a longer-than-expected increase could prompt the Fed to tighten its policies earlier than planned.

“The longer these effects last, the more challenging it will be to stick with a transient view, even though…ultimately pressures are likely to be temporary,” explains Rubeela Farooqi, chief economist at High Frequency Economics. 

Also reported by the Labor Department this week was an encouraging 6.4% increase in GDP for the first quarter of the fiscal year. Experts are already predicting an increase of 9.1% for the second quarter, which would be a record not seen since the 1980’s.