High prices are here to stay

Inflation is pushing prices higher and higher, and some of those costs may never return to the levels Americans were used to before the pandemic.

The big picture: The inflationary moment we find ourselves in now will not last forever. But the good old days of cheap products, and even cheaper services, may be long gone.

Where is it : Before COVID, headline inflation was comfortably at or near the Federal Reserve’s 2% annualized target, thanks in part to technology, productivity and cheap labor.

  • But the low inflation status quo has been disrupted – perhaps irrevocably – by supply bottlenecks, labor shortages and the price spikes that Corporate America is happy to pass on to consumers.
  • Gasoline, food and other consumer prices have soared, with no end in sight.

And after: The energy surge won’t last forever, and some additional costs — like Amazon’s recently unveiled “surcharge” for online sellers — may be waived once the current crisis subsides.

  • However, other prices can be notoriously “sticky” – suggesting that economic activity is rebasing at higher price levels.

People get busted by soaring costs everywhere, and sticker shock is likely to linger for some time, Axios Closer’s Hope King and Nathan Bomey wrote recently.

What they say“The market generally sees inflation falling in the coming years, moving closer to the Fed’s target,” Thomas Berbraken, executive director of MSCI Research, told Axios in an email.

  • “But based on market expectations, a return to pre-COVID price levels seems unlikely – at least for most items in the consumer basket,” he added – even though Fed data suggests that markets and consumers “expect the rate of inflation to decline to lower levels”. over the next few years. »

Yes, but: While some fear the Fed will have to force a recession to calm things down, a soft landing is possible.

  • “A growing labor force could contribute to economic growth and reduce wage inflation and thus contribute to a lower inflation rate,” Berbraken said. “There doesn’t have to be a drop in demand for inflation to go down.”

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