Will inflation return to previous lows? Unlikely to say some experts


What started as a semiconductor shortage that drastically affected the auto industry has grown into many products, from furniture to office supplies, becoming increasingly scarce over the past year, as products remained stranded in ports and consumer demand soared beyond supply.

Among them were North Bay car dealerships who saw more of the sidewalk in their parking lot waiting for cars to arrive.

“When the supply chain was limited, we should have seen it coming,” said John Mackey, senior vice president and general manager of the investment and trust services department at Santa Rosa-based Exchange Bank.

When goods were more accessible, they weren’t cheap. In some cases, prices have skyrocketed with double and sometimes triple digit increases.

Lumber prices, in particular, have soared to 400% of their pre-pandemic retail prices at the highest mark. Gasoline prices exceeding $ 5 to $ 6 per gallon caused pain at the pump. The groceries were significantly more expensive at the cash register.

Some economists have called the Consumer Price Index (CPI) an “index of consumer pain,” which climbed to 6.8% in late November, the US Department of Labor reported. Looking ahead, economists were debating in 2020 whether the alarm bells should ring, as inflation problems surpassed 2% and continued.

Workers were also found to be more expensive to hire. Many chose to quit their jobs at massive rates, triggering a new term – the Great Resignation – as the pandemic forced many to reassess their standard of living and working. Millions of posts have remained in motion over the past two years.

“Labor scarcity drives up labor costs and drives up commodity prices,” Mackey said, referring to the passed-on costs of doing business in times of inflation. “Trade kept it going. And the Fed announced a reduction in its bond purchases.

As part of the equilibrium for the Fed, these bond purchases are designed to keep borrowing costs low across the economy while avoiding market upheavals, economists say. The reduction would allow it to raise interest rates to counteract the surge in prices.

But raising interest rates comes at its own cost. Like clockwork, the Fed runs the risk of cutting borrowing at higher rates as well, which would cause persistent economic growth to slow. The Fed benchmark rate influences mortgages, vehicles, and credit cards.

“The Fed can’t stop interest rates from rising,” Encore Wealth Management financial planner David Brown said, adding fuel costs were one of the “biggest challenges” because “nothing happens in our world without fuel ”. The Santa Rosa wealth advisor predicts that prices will remain high in 2022.

“Inflation is here to stay. They will never go back to where they were, ”he said.

And while the Fed is forced to step back by calling this period of inflation short-lived, this economic setback is considered benign from the 1970s, when it shot up to double digits.

Much of the recovery is for Americans to return to work, which many believe will increase in 2022 from the end of 2021, with an unemployment rate of 4%. This is about a quarter of the high unemployment rate of the pandemic in the spring of 2020.

But despite all the dire predictions of high unemployment causing the economy to fall into an abyss, Americans have remained regular consumers.

“Consumers, for the most part, are strong and wages are rising,” April Kupper, general manager of the JP Morgan Chase Private Bank San Francisco regional office, told Business Journal, insisting that the job market is improving. strengthens.

These consumers hold the keys to economic growth in 2022, according to a report outlining the economic outlook on Dec. 6 by New York-based financial services firm Kupper, with more than a handful of branches in the county. from Sonoma.

The report titled “Preparing for a Dynamic Cycle” states that the economy – driven by companies investing in more innovation than in previous years – will grow significantly by mid-2022.

This recovery depends not only on containing inflation, but also on keeping up with the perplexed workforce. The 5.5 million unemployed, not counting the 1.5 million people who retired during the pandemic, are expected to return to work without increasing unemployment and reducing virus threats as we head into 2022.

“The most likely way forward appears to be that strong job gains and subdued inflation in 2022 will keep the Fed on track to likely start raising rates in late 2022 or early 2023,” says The report.

“This year was a marathon, and I think everyone is exhausted,” Kupper said. “But inflation seems to have peaked. Yes, it’s scary at 6%. But it will take some time to repair the damage from COVID. The economy is doing well.


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