WASHINGTON - Rising prices on a variety of goods and services have lifted inflation to its highest level in 40 years. Inflation is a big threat to the economic recovery, and the Biden administration has vowed to prioritize bringing prices down.
Backed-up supply chains, combined with booming demand from shoppers, drove the U.S. consumer price index up 7% in December from a year earlier.
“We’re seeing inflation across the board, but it’s been extraordinarily high for necessities like food, energy and health care,” said Leah Hartman, a finance and economics lecturer at the University of New Haven in Connecticut. “By this point, it’s hitting everybody.”
This round of persistent inflation - the first in decades - is raising alarm bells even among those who thought price increases would be temporary. Many economists say families will probably see a lasting mark on household budgets, as well as the broader economy, even if supply-chain disruptions ease later this year.
“The causes of inflation are temporary,” said Laura Veldkamp, a research fellow for the National Bureau of Economic Research and an economics professor at Columbia Business School. “But the consequences, we’ll be living with for a long time.”
Here are four areas where everyday Americans are being impacted.
Every category of food - including fruits and vegetables, bread and dairy - has become more expensive in the past year as the industry confronts rising energy and transportation costs, along with mounting labor shortages. The most pronounced increases have been in meat, fish and egg prices, which are up 12.5%, in part because of higher grain costs, as well as a shortage of refrigerated trucks and truckers to drive them. Overall grocery prices have risen 6.5% since last year.
“It comes down to labor and transportation,” Hartman said. “We all go to the grocery store and say, ‘What is going on? Chicken is a dollar a pound higher.’ And it’s because that chicken is caught in the global supply chain.”
Julie Bourne, 29, a freelance content strategist in Brooklyn, says she’s begun noticing that many of her go-tos at the supermarket have gotten more pricey, prompting her to rethink what she buys.
During a grocery run this week, she was “shocked” to see a small container of Sabra hummus priced at $6.50. Bourne passed up pork sausage, which had gone from $4 to $7.50, opting instead for a small package of chicken drumsticks that cost $4.81.
“It makes me nervous because I’ve got to pay for these groceries, and I have to be prepared for rent to go up,” said Bourne, who quit her full-time job to go freelance in late 2020 but is reconsidering her decision. “The reality is setting in that everything has swung higher.”
Gas and energy costs
In one of the most visible instances of inflation, gasoline prices have skyrocketed 50% in the past year, according to the Labor Department.
Although the average price per gallon - about $3.31 - is still below November’s record of $3.44, that figure has started inching back up in recent weeks following growing unrest in Kazakhstan and other oil-rich nations, said Patrick De Haan, head of petroleum analysis for GasBuddy.
“After seeing a little bit of relief, gas prices have been back on the rise for the last two weeks,” he said. “But for all the complaining about higher gas prices, it does not seem to have had a negative impact on consumption. Americans are still filling up at the pump.”
In Akron, Ohio, Carla Hurt says she’s begun consolidating trips to doctor’s appointments and cutting back on unnecessary errands to save money on gas. Hurt, who is 62 and uses an electric wheelchair, is on a fixed income and lives with her 83-year-old mother and college-age son.
“When you’ve got three people existing on $2,500 a month, it doesn’t take much to throw you out of whack,” she said, adding that her monthly heating bill easily totals $500 in the winter. “We make sure that every trip in the car is utilized to its fullest.”
Economists say it’s also costing more to heat homes this winter, as prices for natural gas, propane, electricity and heating oil continue to tick up. Americans who rely primarily on natural gas to heat their homes - nearly half of U.S. households - are expected to spend 30% more than they did last winter, according to projections from the U.S. Energy Information Administration.
It’s no secret that home prices have soared during the pandemic. Median home prices jumped to a record $362,800 in June, according to the National Association of Realtors, as Americans across the country looked for larger, more spacious places to ride out the pandemic.
But now as people return to city centers, rents are also ticking up, especially in large urban areas. Economists say they expect those higher costs to factor more heavily in overall inflation numbers, which are calculated based on the going rate of home rentals. Overall housing prices rose 4.1% last year, Labor Department data show.
The expiration of pandemic-related rent controls and assistance programs are also likely to lead to higher rents, according to Vikram Kumar, an economics professor at Davidson College near Charlotte.
“A lot of leases expired at the end of the year, so as those get adjusted we’re going to start seeing even bigger increases in rents,” he said. “It’s going to have a large impact.”
And while prices of most products can waver in both directions, that’s not usually the case in the housing market, where annual contracts and long-term mortgages make it more difficult for prices to come back down once they rise.
Two years into the pandemic, the heath-care industry continues to struggle with too little supply - of both workers and goods - and overwhelming demand. As a result, medical care costs have begun ticking up.
So far those price increases have been modest - about 2.5% in the past year - though economists say they expect that rate to pick up in coming months as the omicron variant continues to weigh on the sector.
“There’s an enormous strain on the health care system at every point - nurses are burned out, lots of people are showing up with covid in addition to other needs,” Veldkamp of Columbia Business School said. “That shows up as higher prices for everything.”