Several factors driving record-high inflation

May 5, 2022
|
Written by Washington Retail
|

Last week the Federal Reserve released data showing that prices rose more than 6% in January, the highest level in forty years.

According to Senior Economist Curtis Dubay, head of the U.S. Chamber’s research on the U.S. and global economies, high inflation has clear causes that are easy to identify.

Supply and Demand is at the heart of the issue, with constraints on all types of goods. Demand has remained high largely due to the $5 trillion in federal stimulus infused into the economy during the pandemic—spending on goods is up almost 30%. When demand is strong, and supply is constrained, we can count on prices rising.

Much of our supply constraints can be traced back to global supply chains which have not recovered from previous restrictions or the new COVID-19 lockdowns seen throughout China. Supply chain problems are pushing prices higher because goods are scarce, and retailers are paying more due to increased production costs.

Although unemployment has stabilized and is now back to pre-pandemic levels, we continue to see challenges for retailers struggling to pay workers substantially more to come back to work. This increases operating costs and impacts the cost of goods sold to consumers.

The outlook for the retail industry in 2022 remains solid, but high inflation will likely remain, dropping to 3-4% by year’s end. Monetary policy, which infused an enormous sum of money into the economy, is now causing unintended consequences that the Fed will have to deal with as we recover from the pandemic. Clearly, retailers are responding to market forces beyond their control.