A number of services – notably rents and restaurant meals – have grown more expensive in recent months.
The Fed is trying to keep those widespread price pressures from becoming embedded. While officials still expect the price increases to begin fading soon and to be running considerably slower by the end of the year, they are no longer betting on that outcome.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
“In the case of the United States, we have had an expectation that inflation would peak around this time and then would come down,” Jerome H. Powell, chair of the Fed, said at an event last week. “These expectations have been disappointed in the past.”
The outlook for price gains in the months ahead are unusually uncertain. On the one hand, the Fed’s pivot on interest rates has pushed mortgage rates sharply higher, which may start to weigh down the housing market and cool off related types of demand. Already, some companies – like the washing-machine maker Whirlpool – are seeing consumer demand wane compared to last year, though it is elevated relative to its prepandemic levels.
But costs for key inputs continue to climb, and that may remain the case as China locks down key cities to contain the coronavirus and as the war in Ukraine keeps some supply lines under strain.
At Whirlpool, higher input prices are prompting the company to charge consumers more.
“Historic levels of inflation, notably in raw materials, energy and logistics, will impact us throughout the year,” James W. Peters, the company’s chief financial officer, said in an April 26 conference call. “However, our previously announced pricing actions are on track and position us to fully offset cost inflation as we exit the year.”
Many products were already struggling to return to normal inventory levels before Russia invaded Ukraine and roiled commodity markets. Cars and trucks, for instance, remained in short supply thanks to shortages of key parts – most critically semiconductors. Executives at Ford said this week that the company had 53,000 vehicles built but that they were awaiting chips.
“Customers’ demand is extremely strong,” Jim Farley, chief executive officer at Ford, said in an April 27 earnings call. “However, we are still grappling with persistent supply chain issues that prevent us from posting even stronger quarter.”