Inf lation rattles restaurants, broader economy
Consumer confidence sags as prices go up
Only once in six years had Mark Maguire raised prices at his North Dallas restaurant.
Then, some of his employees, no doubt noticing the banners touting $1,000 signing bonuses at other eateries, demanded higher wages. And his suppliers hiked the cost of chicken, beef and cooking oil.
Maguire’s costs rose so much so fast that he’s had to rewrite his menu prices twice since March. Whether additional increases will follow depends upon a complex interaction of food supplies, labor availability and a shapeshifting virus.
“It’d be foolish for me to believe we’ve seen the worst of it,” he said. “I don’t want to let my mind think about this becoming a long-term deal.”
Neither does the Federal Reserve or the Biden administration, which both insist that the inflationary squall will pass before it unhinges the recovery. On Monday, President Joe Biden called rising prices “temporary” and said his plans for infrastructure spending and pro-competition regulation would drive prices down in the long run.
Consumer confidence readings, however, are sagging, and the unpredictable landscape confronting Maguire, 57, helps explain why some employers lack Washington’s confidence.
White House economists liken today’s fast-rising prices to a temporary bout of inflation following the end of World War II. But Fed officials concede that they already have been surprised by the recovery’s initial chapters and that more surprises may loom.
“It’s a once-in-a-century experience with a different economy than it was a century ago,” said Diane Swonk, chief economist with the firm Grant Thornton. “There’s just no road map.”
Last week’s Labor Department report that consumer prices rose 5.4% in June, their fastest pace in 13 years, reignited a debate about whether officials have overstimulated the economy.
Congress over the past 16 months has spent more than $5 trillion to support growth, while the Fed has kept interest rates near zero and purchased more than $4 trillion in bonds.
The Fed says it will tolerate, for an unspecified period, inflation running “moderately” above its long-term 2% goal. But critics such as former treasury secretary Larry Summers warn of an inflationary spiral resembling the decade-long rise that began in the late 1960s.
Fed Chair Jerome Powell acknowledged last week that the current pace of price increases is excessive, while reiterating that they will subside as the economy works out its reopening kinks.
Speaking at the White House on Monday, the president said that “no serious economist” believes that “unchecked inflation” is likely. He blamed the rising cost of living on the strains of economic reopening.
“You can’t flip the global economic light back on and not expect this to happen,” Biden said.
Normally, the Fed would raise interest rates to cool off rising prices. But with employment still more than 10 million jobs below its pre-pandemic trend, and with profound uncertainty about the pace of rehiring, the environment is anything but normal.