Richmond Fed President Tom Barkin: People are still trying to take price on the services side

Steve Liesman is here at Post tonight with a very special guest, Steve. Thank you, Carl. We have Tom Barkin here from the Richmond Fed, just a short hop up from Richmond to New York. Thanks for coming, Tom. No, great to be here. I start with you. I want to start with you in a place I don't start with most Fed officials, which is because you come more from the business world, right, rather than the economic and theoretical world. And you've been talking for many years now about what I call the culture of inflation. Your whole idea was it became OK in the middle of the pandemic to raise prices, and you've been watching this tension between the cup companies, the sellers, and the buyers. Where are we at, in your opinion, in the ability of companies to pass along higher prices, whether or not it's still cool to do that and whether or not consumers are fighting back? Well, if you go back to before the pandemic, people really thought, as you said, they had no chance. They'd been pricing power e-commerce and globalization and market power and all of those things to say. I have no chance. Then the pandemic hit, and they really had no choice. And so people took a step they just hadn't been ready to take, which is to increase prices. And when they took them up, they didn't find any consequences. There were no consequences. And so we'd like to think we're back in the no chance world again. But people are still saying there's no crime, there's no crime in trying, and they're still trying now. I think there's a big difference between goods and services. And when I talk to folks on the good side, and you can see this in the numbers, I think goods producers are sort of convinced at this point that they're back to where they were. They're hearing very aggressive news from the intermediaries like the Home Depot's and Lowe's of the world that says we don't want to take any more price increases. The commodity costs have come down in many cases. And so they don't have the story anymore. But on the services side, I'm still hearing people trying. I was with a pest control company last week who said, Oh no, we didn't take prices up for seven years from 2015 or 2013 to 2020. Then we took it up a bunch. We're still taking it out and labor is a story that they use. So it has something to do with cost, but it also has something to do with they've changed their view on price elasticity on the customer side. Those aren't the words they use, but that's what they've they've changed their view on elasticity. They're going to keep trying until customers or competitors and we're not there yet in your opinion, not on the services side, but I think we're getting pretty close on the, on the on the good side, which brings me rather easily to the inflation report yesterday. I don't know, I guess in economics you get more than three strikes because it was 123 strikes and you're out through March yesterday. Did you see that as a little better? Are we back on track as Mike Santoli suggested? Well, I actually was interested even more interested in the retail sales report yesterday because the consumer spending numbers for the couple months before that had come in quite strong and stronger than I was hearing in the marketplace. So I was testing my own thinking on consumer spending. I think when you take the retail sales of yesterday and you look at the three month numbers, you now say, OK, that's what I'm hearing in the marketplace which is good but not great consumer spending. So that was one piece of the puzzle which is how hot is demand on the inflation side. It certainly came off the numbers of the prior few months which was good. It's still not where we're trying to get in target. And most importantly I'd say back to where I was going, goods, you know 0 to deflationary, services and shelter still inflationary. And you'd like to imagine that mix would come back more toward where it was before. COVID, I know my colleagues are anxious to ask some some questions here, but I want to do one more before I go go, before I give it up here. Is it your opinion that this the consumer and growth needs to slow to get back to your 2% inflation target or can we do it with GDP remaining above trend and potential? Well, we had a a really good year last year, supply chain stuff was unbelievably helpful and you didn't need to run below potential, but you didn't need to run below potential exactly. And you could always come up with some more supply supply stories, some supply side stories that would help you. But I do think we're going to have to take the edge off demand, not we, but the edge will going to have to come off demand a little bit more to have inflation back at Target. But, but we'll see. That's when I say that customers and competitors are going to need to teach people that they don't have pricing power that's from yesterday's.

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