12 May, 2021

Consumer prices rising a result of government COVID-19 response

Prices are rising sharply. Sharply in relative terms as compared to the past decade or more. But what did we expect when governments of the world shut everything down for COVID-19? Economic activity stopped. In order to keep things propped up stimulus was passed that far exceeded anything seen in modern times. People at first didn’t spend the money because they didn’t know when or if they could go back to work. Lockdowns and restrictions lasted more than a year and are still in place in some locations. After the 1 year anniversary of COVID-19 lockdowns people suddenly started spending some of that stimulus money. Now, we have the classic case of too much money chasing too few goods. Hence inflation.

Food prices climbed 2.4% from the same month a year ago, including a 3.8% rise in the cost for restaurant meals and other meals away from home. Car and truck rentals surged 82% compared with April 2020, and airline fares leapt 9.6%.

The annual inflation measurements are currently being affected by comparisons with the figures from last year early in the pandemic, when prices dropped steeply due to collapsing demand for many goods and services during Covid-19 lockdowns, said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. This so-called base effect is expected to influence inflation readings until the summer, she said. For example, gasoline prices soared 50% versus April 2020, though they decreased 1.4% versus March.

Compared with two years ago, overall prices rose a more muted 2.2% in April.

Wall Street Journal

This recent spike, in my mind, will be temporary. It’s a short term spike because of these special circumstances. I expect things to calm down in the next few months. But, over the long term I don’t expect things to get better. I expect inflation to rise quicker than we’re currently being told. I think the trillions of dollars being pumped into the U.S. economy has to come back to bite us at some point. It’s just a matter of when and how bad. Hopefully it’s far off and mild.

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About : Kevin Bae

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