Consumers are paying more for a range of products, including bacon, blouses and used Buicks, as the economy rebounds strongly from the COVID-led recession with considerable help from Congress and the Federal Reserve.
The overarching question is whether these price increases will stick — and for how long. Fed officials have so far maintained that the hikes will dissipate fairly quickly, though some economists warn the trend could be more lasting.
Costs of raw materials, such as lumber, paper, steel, glass and plastic, as well as manufacturing and shipping, are rising in line with rebounding demand. A widespread microchip shortage is adding to retailers' struggles by making it harder to automate supply chains and keep operations running smoothly, said Greg Portell, a partner in the consumer practice at consulting firm Kearney.
"You have inflationary pressures from two sides: The cost of materials is going up at the same time that demand is rising," he said. "Typically you have one or the other but now you have both, which is creating the crunch."
The recent run-up comes after years of lagging inflation. While product prices can fluctuate, policymakers generally aim to keep annual inflation running at about 2%.
Generally, Portell said, he expects prices to stabilize in 18 to 24 months, as suppliers and manufacturers catch up to pent-up demand for consumer goods like clothing and furniture.
In the meantime, here are some of the categories where prices are climbing.
♦ Used cars and trucks: Cars are in high demand, but in short supply — and that, economists say, is particularly true of the country’s stash of used vehicles. Early in the pandemic, Americans wary of public transportation snapped up used cars to help with commutes and errands. Since then, demand has continued to climb beyond supply, due in part to a microchip shortage and factory shutdowns that have slowed the production of new vehicles.
Used car prices rose by 7.3% last month, accounting for roughly one-third of overall price inflation, according to the Labor Department. Economists say they expect those hikes to continue in the near-term, pushing up commuting costs for low-wage workers who are rejoining the labor market.
"We are entering what will no doubt be a long, hot summer as consumers continue to spend faster than most producers and service providers can keep up," Diane Swonk, chief economist at Grant Thornton, wrote in a note to clients this week.
♦ Furniture: Rising prices for materials such as leather, steel, acrylic and lumber have driven up prices for desks, sofas and other high-demand furniture. Manufacturing and shipping have gotten more expensive too, as companies deal with overwhelmed factories and clogged ports. Retailers say just about every step of the supply chain has become costlier and more cumbersome in recent months, leading to steadily climbing prices. Ocean freight shipping fees from Asia to the United States have quadrupled in some cases, from about $1,500 per container to $6,000 in the past year, according to Mark Yeager, chief executive of Redwood Logistics.
"Individually, any one of [those hurdles] is not that significant and could be overcome," Kurt Darrow, chief executive of La-Z-Boy, said in a recent earnings call. "But when you get them coming at you from six or seven different directions, the magnitude of it adds up."
♦ Gas: The average price for a gallon of gas has risen nearly 50% in the past year, from $2 to more than $3, according to AAA. Analysts say tanker shortages and the recent cyberattack on the Colonial Pipeline, which supplies nearly half of the East Coast’s gasoline, have contributed to an increase in crude oil prices.
But, critically, demand is also up, with Americans hitting the road for summer travel. Analysts say recent stimulus checks, which many families spent on necessities like food and gas, have also helped contribute to rising consumption.
Average gas prices have risen for seven straight weeks and are likely to peak midsummer, according to Patrick De Haan, head of petroleum analysis for GasBuddy.
"Last year, as a result of the sudden plummet in gasoline demand, oil companies took three, four steps backwards," he said. "They laid off employees and now, like many other sectors, are struggling to bring back labor. We may be stuck with these high prices for a while."
♦ Beef and pork: Bacon, steaks and other types of meat products are getting pricier as the industry grapples with labor shortages, as well as rising grain and energy costs. Costco says it’s paying as much as 20% more for beef than it did a year ago, due in part to rising feed and transportation costs. Demand is soaring, too, as restaurants reopen and countries like China and Vietnam clamor for American pork and beef exports.
Adding to the challenge, industry experts say, is a slowdown in processing times. Meat processing plants have been particularly hard-hit by covid outbreaks that have hindered operations.
Jeanne Gustaf, who lives near Seattle, says she's noticed the price of meat has been rising at her local Safeway. Frozen breakfast sausages have jumped from $1.99 to $2.49, she said, and other products like bacon are costlier, too.
"We love bacon but we just can't buy it much anymore because it costs more than $8 a pack," the 49-year-old book designer said. "That seems like a small thing, but it adds up."
♦ Washing machines and dryers: A semiconductor shortage, combined with surging prices for steel and plastic, is driving up the cost of washing machines and dryers. Appliance giant Whirlpool recently raised prices by as much as 12%, with executives saying that rising material prices have already cost the company $1 billion. Cost increases, they said, are likely to peak in the fall, though they feel confident that consumers will keep buying, thanks in part to booming housing sales.
"Demand is a sustained and multiyear trend," chief executive Marc Bitzer said in an April earnings call. "It's not a blip."
♦ Airfare: After a year of rock-bottom rates, plane tickets are getting costlier just in time for summer travel. Many airlines, which dramatically cut flight schedules during the pandemic, are reporting a surge in bookings as newly vaccinated Americans make up for lost time. The result, economists say, is a classic case of low supply and high demand. And airlines are more than eager to make up for the billions in losses they’ve reported over the last year.
Fares are already creeping up to — and sometimes beyond — pre-pandemic levels. Average ticket prices for domestic travel have risen 7% since May, while international fares are up 13% in the same period, according to financial research firm Bernstein. At Alaska Airlines, for example, fares for peak flights are higher than they were in 2019, as part of a “short but stable climb” in prices, chief commercial officer Andrew Harrison recently said on an earnings call.
But analysts say skyrocketing airfares aren't likely to be permanent. They expect prices to stabilize once pent-up demand slows and more Americans are back in the office.
♦ Clothes: Apparel retailers slashed inventory early in the pandemic when it was unclear when — or what — consumers would be ready to buy again. But now that shoppers are snapping up shirts, dresses and suits again, stores are finding that they’re not having to offer the steep discounts they once did. National chains are scaling back on promotions, in part to make up for rising manufacturing and transportation costs.
Analysts say a more complex supply chain — due in part to a scramble to diversify operations to dodge tariffs — have also added to costs.
“It used to be that apparel would go from country A to port B to ship C,” Portell said. “But the supply chain is much more complicated now — there are multiple sources, multiple suppliers — and all of that adds to the cost.”