Inflation: Yes, prices really are starting to rise
“The cost of producing and distributing everything from furniture to foam to cars and machinery is rising,” said Anjani Trivedi in Bloomberg.com. That’s the message coming from corporations, and sooner or later it’s going to hit consumers, too. Recently, 3M has pointed to “rising freight costs to ship its goods,” while Mattel is saying that plastic is more expensive. Even the price of lithium carbonate, a chemical needed to make electric-car batteries, has more than doubled in the past six months. Though the Federal Reserve says it’s not worried about near-term inflation, producers seem far less sanguine. “Companies are looking for ways to ease the pressure, but no one seems to have a clear way out besides hoping the situation is temporary because of Covid-19 disruptions.”
Many companies seem to think that rising commodity prices are not “transitory,” said Lisa Beilfuss in Barron’s, and some are already starting to pass on the costs. Last week, Kimberly-Clark, the maker of Huggies diapers, Kleenex, and Scott toilet paper, told consumers to expect “middle-to-high single-digit price increases” across a majority of its North American products starting in June. That follows similar announcements from companies such as J.M. Smucker, which said in February it’s going to have to raise the price of Jif peanut butter. Companies wouldn’t “go through the pain of raising prices unless they thought higher costs
of production would stick around.”
Prices of goods fluctuate all the time, said Paul Krugman in The New York Times. They change “in response to changes in supply and demand,” so they can “plunge just as quickly when market conditions change.” Economists prefer measures that actually exclude food and energy prices, because they tell us little about the long-term price outlook. The better gauges are “sticky” measures, such as wages and salaries, that change less frequently.
Yes, measuring inflation is a major headache, said Alexandre Tanzi in Bloomberg.com, but we do have evidence that stories of price increases reflect a real trend. The Consumer Price Index is “based on a ‘basket’ of stuff that Americans typically spent their money on in the past.” The pandemic has upended traditional spending habits, and that “basket” is less useful. Dining out, for instance, “accounts for 6.3 percent of the U.S. CPI basket,” and Covid has seriously disrupted that. However, tracking online spending—a fast-rising share of purchases—may yield a better way to check where prices are headed. Alberto Cavallo, a Harvard economist, has created an alternative inflation gauge “using a basket based on credit-card transactions that reflect what Americans have been buying.” He’s finding prices that have “consistently delivered a higher reading than the official CPI.”