Not since Americans came home from World War II has inflation run through the economy like it is now

Asia's Tech News Daily
Residential single family homes construction by KB Home are shown under construction in the community of Valley Center, California, U.S. June 3, 2021.
Mike Blake | Reuters

Not since Americans came home from World War II has inflation percolated through the U.S. economy like it is now, and it could continue to do so for months to come.

That's because the pandemic hit the economy like a sledge hammer, shattering the normal way business is conducted and consumers live their lives. The disruptions for many businesses have been difficult to repair, and the return to normal has been challenging due to supply chain disruptions and labor shortages.

“You had a very quick and abrupt shift in the economy,” said Michael Gapen, chief U.S. economist at Barclays. “And it takes time to retool. It's a super tanker. It takes time to turn.”

Companies and consumers across the country are feeling the hit from rising prices and goods shortages, and many businesses are adjusting the way they operate.

Frank Barbera, president of Barbera Homes in the Albany, N.Y. area, said this period of rising prices is unique in the 30-year history of his family business.

“The costs definitely went up faster than the price. Our average home is up over $60,000 and that's just hard costs passed along. The average two-by-four for example over the course of the past year from July, 2020 to roughly the same period in 2021, went from $4.30 to $11.36,” he said. The two-by-four is now about 50% lower but lumber is still volatile.

Barbera said other building materials have also gone higher, including a 20% increase in insulation this year.

Homebuilder Chris Carr said his construction company has changed the way it buys some materials for the homes he builds in New Jersey beach towns, like Avalon and Stone Harbor. 

“We've acquired more storage space so we can store all the things we are buying. We're buying truckloads of roofing materials” plumbing supplies and other materials, said Carr, owner of McLaughlin Construction.

“Before we were just-in-time purchasers, and so for certain aspects of a home we can't do that anymore.”

Pressures on prices

Pent up demand, changing lifestyles and a load of stimulus money created a surge in demand for all kinds of goods. But that demand has met a supply network that was also damaged by the pandemic and is struggling to return to a more normal level of activity. Labor shortages and logistics problems are compounding the situation.

Gapen said the consumption of core goods is now about 17% to 20% above pre-pandemic levels and core services demand has not yet recovered. Core goods exclude food and energy.

“It's like any economy in any situation would be in trouble if its citizens were requiring it to produce 20% more goods in one year's time,” he said. Post-pandemic consumers changed their lifestyles. Many fled to suburbs and beyond, moved into houses, and furnished home offices. They also needed cars.

“It's the greatest historical anomaly in the relationship between core goods and services prices that we've seen since the end of World War II,” said Gapen. “I think the World War II experience is the closest parallel to what we're seeing.”

Soldiers returned home in the late 1940s, and the demand for everything from housing to clothing soared. “You had to rejigger the economy and re-employ all those people. What happened is you had an inflation boost for two or three years,” Gapen said. “By the end of the '40s, you were flirting with deflation.”

The debate among economists is how much of this pandemic era inflation will linger and how much of it will be temporary. In October, the consumer price index was up 6.2% year-over-year, the highest in 31 years. Core CPI, excluding food and energy, was up 4.6%.

!function(){“use strict”;window.addEventListener(“message”,(function(e){if(void 0![“datawrapper-height”]){var t=document.querySelectorAll(“iframe”);for(var a in[“datawrapper-height”])for(var r=0;r

Goods prices across the board have been rising. The price of gasoline in October was up about 50% over last year. Used cars were up 26%, and new cars were up nearly 10% year-over-year.

The index for meats, poultry, fish and eggs jumped 11.9% while beef prices were up 20% from a year ago in October.

“It's a relative demand story. Three [core] goods categories are responsible for most of that inflation – autos, used autos and household furnishings. Bigger durable items,” he said.

For decades, core goods prices have fallen relative to services. “It's just really unusual to see this surge in goods prices and trend because of things like technology innovations and globalization had meant that you may pay more for that computer, but the computer you have today is far more powerful than the one you had 20 years ago,” Gapen said.

Apparel and appliances are two areas where globalization has resulted in lower price trends. According to Moody's Analytics, relative to the overall consumer price index, the price of appliances is down 46% since the year 2000, meaning appliance prices are higher but they are 46% lower than consumer prices. Apparel prices are also higher but they are 43% lower than consumer prices in that period.

An area where prices have risen very rapidly was hospital services, where prices are 92% higher than overall consumer prices since 2000.

Gapen notes that normally consumers tend to halt purchases of durables in more traditional downturns, leading to price declines of core goods. But as the economy recovers from its downturn, household demand for durables tends to increase, bringing prices back up.

But the pandemic was unusual and instead it boosted goods prices relative to services, raising concerns about how long prices will rise.

!function(){“use strict”;window.addEventListener(“message”,(function(e){if(void 0![“datawrapper-height”]){var t=document.querySelectorAll(“iframe”);for(var a in[“datawrapper-height”])for(var r=0;r

Mark Zandi, chief economist at Moody's Analytics, does expect to see a decline in prices in some categories next year.

Meanwhile, the inflation could feed on itself as consumers and businesses acquire hard-to-get items, making prices go even higher. But that cycle should break once producers catch up, inventories build and overproduction could cause prices to drop.

He therefore expects inflation to ultimately fall back to about 2.5% for core CPI, excluding food and energy.

“It may take until early 2023, but I think we'll settle into 2.5% core CPI. I actually think there's a possibility that prices are actually lower again. I think energy prices will come in, vehicle prices will come in and various building materials will come in,” he said.

But still, there is a risk they won't.

“If these spikes in prices do affect inflation expectations and get embedded in wage price dynamics then we have a problem,” Zandi said. “I don't think we're there. I think this is garden variety supply shocks which result in big price spikes but that sows the seeds of future declines.”

“At that point you have prices coming back down to earth, and that's the dynamic I think we're going to see,” he said.

Paying the rent

Shelter costs are an area where many renters would expect to see a sharp increase, but they rose just 3.5% year over year in October in the CPI. The category includes rents and owners equivalent rent, and makes up about a third of CPI.

Rent is one area where economists expect to see continued price increases, even as other categories fall. According to Apartment List, rents between the beginning of the year and October were up 16% nationally, and CPI data should start to catch up.

“That's being affected by the pandemic but regardless of whether there's a pandemic or not, rent prices would have accelerated because of an affordable housing shortage,” said Zandi. “The pandemic made it worse because you have all these millennials that went back to live with their parents or doubled up when the pandemic hit. They're all starting out on their own, forming households and renting.”

Zandi said rent is adding a half percentage point to his 2.5% CPI forecast, and that is the factor that could keep inflation above the Fed's 2% target.

Builders, like Barbera, are still seeing strong demand for single family houses even with much higher prices. In order to meet demand, Barbera is carefully managing what he builds.

“We limited our lot releases so in some neighborhoods we stopped selling temporarily or we limited the amount of lots we put on the market at one time so that we could have better control over not only costs but labor, making sure we could produce what we're selling,” he said. “We have been fortunate. We have a very stable trade base, but everyone is working 24/7 just to keep up.”

He's hoping prices will start to stabilize.

“Other than lumber, I cannot foresee any of the products we're currently using coming down in price, and I don't see labor coming down. It will find its peak, but materials have not leveled off yet,” Barbera said.

But for small businesses, the challenge is to operate effectively.

“With the price increases we've seen, we had a lot of homeowners who have said 'holy smoke, this is expensive!' Then it's our job to make them understand what the trigger points were that made it expensive,” said Carr. “Other than lumber, every other material we're seeing is going up in price. On a weekly basis, we're getting price increase notices. It's a very volatile market.”

Carr emphasizes that the volatility, except with lumber, has been one way. “I'm not getting 2% to 3% price notices from these suppliers. I'm getting 10% to 15% increases multiple times a year,” he said. Carr said depending on the home, the cost is 25% to 50% higher in the past two years. “Land values have increased. The whole package has increased.”

Internet Explorer Channel Network
Asia's Tech News Daily
News Related


Far East, Arctic development corporation to assist Nornickel in ecology, tourism projects

According to Nornickel’s Vice President Andrei Grachev, the company’s investment program plans investments in various projects in the amount of $30 billion, where 6 billion are planned for ecology projects Read more »

Nornickel: Taimyr to host indigenous peoples' international forum in 2022

The event will be organized in the framework of Russia’s chairing the Arctic Council Read more »

WTO joint statement to enhance transparency in services industry

gettyimagesbank By Lee Kyung-min Korean firms will be able to expand their overseas business more efficiently, a move outlined in a joint initiative statement signed by 67 member countries of ... Read more »

India's services sector activity in November registers second-fastest pace of growth since July 2011: Survey

Representative image of hotel lobby. India’s services sector activity expanded at the second-fastest pace in more than a decade during November, driven by sustained rise in new work and improvement ... Read more »

(2nd LD) Nat'l Assembly passes record 607.7 tln-won gov't budget for 2022

(ATTN: ADDS finance chief’s comments, nat’l debt in last 4 paras)By Lee Haye-ah SEOUL, Dec. 3 (Yonhap) — The National Assembly passed the 2022 government budget Friday, a record high ... Read more »

Singapore retail sales rise 7.5% in October but F&B sees drop amid Covid-19 dine-in curbs

SINGAPORE – Retail sales in Singapore saw better-than-expected growth in October despite tighter Covid-19 restrictions, partly due to higher mobile phone sales from new product launches. Takings at the till ... Read more »

Daewoo Shipbuilding wins 383 bln-won order for offshore facility

By Nam Kwang-sik SEOUL, Dec. 3 (Yonhap) — Daewoo Shipbuilding & Marine Engineering Co. (DSME) said Friday it has signed a 383 billion-won (US$325 million) deal to build a wind ... Read more »

Dollar rises to 73.84 rubles on Moscow exchange

Euro moves up to 83.5 rubles Read more »

Online shopping hits record high in Oct. amid COVID-19 pandemic

SEOUL, Dec. 3 (Yonhap) — Online shopping in South Korea hit a record high in October on the back of solid demand for food delivery services and electronic goods amid ... Read more »

Imported car sales fall 31 pct in Nov. amid chip shortages

SEOUL, Dec. 3 (Yonhap) — Sales of imported vehicles in South Korea fell 31 percent in November from a year earlier as chip shortages continued to disrupt vehicle production and ... Read more »

Hiring was likely strong and employers boosted wages in November, economists say

A worker moves boxes of goods to be scanned and sent to delivery trucks during operations on Cyber Monday at Amazon's fulfillment center in Robbinsville, New Jersey, November 29, 2021. ... Read more »

China introduces restrictions for import of goods from Russia - consulate-general

Since November 29, Suifenhe railway station temporarily does not accept box railcars from Russia with goods requiring manual unloading Read more »

OPEC+ output decision due to balanced market, demand recovery, says Novak

According to the Russian deputy prime minister, such decision was made mainly due to the fact that the market was balanced, the demand was gradually recovering Read more »

Russia to scale up oil production by 109,000 barrels per day in January 2022

The next meeting of OPEC+ countries will be on January 4, 2022 Read more »

Rosatom: Northern Sea Route needs 14 icebreakers by 2030

According to Rosatom’s Deputy Director General Vyacheslav Ruksha, presently, the shipbuilding sector cannot meet the demand to satisfy the Northern Sea Route’s regular shipments Read more »

About 12 million tonnes of Taimyr coal to be shipped via Northern Sea Route after 2030

Northern Star’s project is the development of a coal deposit. The capacity at the initial stage would be 5 million tonnes a year, and the annual capacity by 2032 will reach up to 20 million tonnes Read more »

Kremlin credits ‘special' 2022 gas price for Belarus to privileges under integration deals

Based on the deal inked by the two parties, the fuel price for Minsk for 2022 was set at $128.52 per 1,000 cubic meters Read more »

Rosatom: Sibir nuclear-powered icebreaker expected in Kara Sea in January

The Sibir nuclear-powered icebreaker is the second vessel of Project 22220, built by the Baltic Shipyard Read more »

OPEC+ ministers discussing base plan of oil production recovery

OPEC+ member-states are restoring oil production at the pace of 400,000 barrels per day since August and this plan is the base one Read more »

National Assembly ratifies RCEP trade pact

SEOUL, Dec. 2 (Yonhap) — South Korea’s parliament on Thursday ratified the Regional Comprehensive Economic Partnership (RCEP), a regional free trade agreement that encompasses about one-third of the world’s gross ... Read more »

U.S. weekly jobless claims total 222,000 vs. 240,000 estimate

Initial claims for unemployment insurance rose last week but held at levels consistent with how the job market looked before the Covid-19 pandemic devastated the U.S. jobs picture, the Labor ... Read more »

OPEC+ monitoring committee makes no recommendation for January production level

The ministerial conference to start soon Read more »

OPEC+ monitoring committee starts discussing January plan — source

The ministers also to touch on the oil market report prepared by the OPEC+ technical committee the day before Read more »

Wildberries enters Turkish market

The company offers buyers in Turkey about 5.6 mln items of goods from 163,000 international brands Read more »

Focused discussion of Union State's common currency not underway, says Kremlin

According to Dmitry Peskov, the integration stage "does not imply the introduction of the common currency" Read more »

Framework for creation of common digital space established in EAEU, says Russian PM

"The creation of a whole ecosystem of digital projects, independent and integrated, which will enhance the integration cooperation, lies ahead," Mikhail Mishustin said Read more »

RSV Mikhail Somov returns from Northern Sea Route ice trap to home port

The ship has delivered cargo to 32 stations Read more »

(2nd LD) S. Korea's Q3 economic growth unchanged at 0.3 pct: BOK

(ATTN: ADDS GNI figures in last 3 paras)By Koh Byung-joon SEOUL, Dec. 2 (Yonhap) — South Korea’s economy grew at the same pace as earlier forecast in the third quarter ... Read more »

Hainan's Haikou Meilan International Airport opens new terminal

Its area of the terminal is almost 300 thousand square meters Read more »

Inflation woes grip Korean economy

Deputy Prime Minister and Finance Minister Hong Nam-ki. Korea Times file Consumer prices jump at fastest pace in nearly 10 years By Lee Kyung-min The much-dreaded persistence of inflation is ... Read more »

China property market to keep cooling into H1 2022 on tight curbs: poll

The property sector, a key driver of growth in the world’s second-largest economy, has slowed sharply in recent months. BEIJING (REUTERS) – China’s property downturn is expected to continue into ... Read more »

FSS chief meets with asset management leaders

Financial Supervisory Service (FSS) Governor Jeong Eun-bo, fifth from right, stands next to CEOs of local asset management companies who participated in the meeting held at Kensington Hotel in Seoul’s ... Read more »

Dollar rises to 74.75 rubles

The euro increased by 47 kopecks and reached 84.15 rubles Read more »

Indian companies raise $1.34 billion from foreign markets in October; down 34% from last year, says RBI

Indian companies raised nearly $1.34 billion from foreign markets in October this year, down 34 percent from the year-ago period, Reserve Bank of India (RBI) data showed on December 1. ... Read more »

OPEC+ ministers will assess oil output plan for January amid new coronavirus variant

So far, oil exporters, which account for around 40% of world oil output, have been recovering oil production at an equal pace since August Read more »

(3rd LD) Inflation growth hits 10-year high in Nov. amid rising oil prices

(ATTN: ADDS more details in paras 21-24; REWRITES lead)By Kim Soo-yeon SEOUL, Dec. 2 (Yonhap) — South Korea’s consumer prices rose at the fastest pace in nearly 10 years in ... Read more »

South Korea inflation accelerates to decade-high in November

Consumer prices in South Korea rose 3.7 per cent in November from a year earlier, exceeding all economists estimates. SEUOL (BLOOMBERG) – South Korea’s inflation accelerated to the fastest pace ... Read more »

(LEAD) S. Korea's Q3 economic growth unchanged at 0.3 pct: BOK

(ATTN: UPDATES with BOK official’s briefing in last 8 paras; ADDS photos)By Koh Byung-joon SEOUL, Dec. 2 (Yonhap) — South Korea’s economy grew at the same pace as earlier forecast ... Read more »

Opec+ faces output decision as Omicron puts market in disarray

Oil futures sank further to US$65 a barrel in New York on Dec 1, 2021. NEW YORK (BLOOMBERG) – Opec and its allies headed into a second day of talks ... Read more »

[Contribution] What can we expect in post-pandemic Korea?

Alicia Garcia Herrero By Alicia Garcia Herrero After a long fight against the COVID-19 pandemic, Korea has started to open up recently by making international travel possible albeit still difficult. ... Read more »
On you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic