SARAH MCCAMMON, HOST:
Some have described the U.S. economy as red hot as it bounces back from the pandemic. Well, we got a temperature check this morning with news that inflation hit its highest level in nearly 13 years last month. Prices in May were 5% higher than they were one year ago. Those higher prices are a hardship for many people, but many others are still spending freely.
NPR's Scott Horsley joins us now to talk about it. Hi, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Sarah.
MCCAMMON: So, Scott, what is driving up this run up in inflation?
HORSLEY: Well, some of this is just a return to more normal pricing. For example, airline tickets were up 24% from a year ago. But remember, airline tickets were really depressed at the beginning of the pandemic when nobody was flying. We're also seeing lots of pent-up demand from consumers who've been stuck at home for much of the last year, and they're eager to hit the road. In many cases, that demand is bouncing back faster than expected, faster than a lot of businesses can catch up, so that's putting upward pressure on prices. And frankly, a lot of consumers are more than willing to pay. And finally, we do have some supply bottlenecks. The poster child for that is the shortage of computer chips that's been hampering automakers. So they're turning out fewer new cars, and as a result, used cars now cost almost 30% more than they did this time last year.
MCCAMMON: And I don't know about you, Scott, but I'm seeing help wanted signs everywhere. Some employers are complaining they can't find enough workers. What does that mean for prices?
HORSLEY: If a restaurant or a hotel can't hire enough people to serve everybody who wants to come in, that might increase the value of the meals and the rooms that do get sold. You're also seeing some businesses raising wages in an effort to attract more workers. And in some cases, they're passing those labor costs onto consumers. Indiana Congressman Jim Banks grilled the Labor secretary, Marty Walsh, about that during a congressional hearing yesterday.
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JIM BANKS: Chipotle announced a 4% increase in their - all of their menu prices across the board to keep up with rising labor costs. I'm curious, Mr. Secretary, is that a good sign or a bad sign for our economy?
MARTY WALSH: I think the fact that they want to pay their workers more is a good sign.
HORSLEY: The burrito chain is trying to hire another 20,000 workers to keep up with consumer demand, and Chipotle has said it wants to pay an average wage of $15 an hour. If that leads to higher prices for guacamole and carnitas, that does eventually make its way into the inflation numbers. And, you know, back in the 1970s, we actually got in this sort of vicious cycle where wages went up, so prices went up, and then wages went up again, and it eventually spiraled out of control. In this case, though, both the Biden administration and the Federal Reserve think this period of higher inflation will be temporary.
MCCAMMON: Why? What's different now?
HORSLEY: Well, remember, there are still millions of people who are out of work for a lot of different reasons - some of them have not been vaccinated yet; some are still having to look after kids who are not in in-person school; some might be looking to make a career change after months out of work. Eventually, we do think most of these people will find their way back into jobs. And of course, enhanced unemployment benefits are running out this fall - in many places, sooner than that. So if you do get more people working, that should take some of the upward pressure off both wages and prices. Also the other bottlenecks should get worked out eventually as supply catches up to demand. And once things like airfares are back to pre-pandemic levels, we don't expect them to just keep on climbing. So Treasury Secretary Janet Yellen says by next year, she thinks inflation will cool off. Remember, though, Yellen used to run the Federal Reserve, which is the nation's inflation watchdog, so she's not taking anything for granted.
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JANET YELLEN: I don't want to say this is mind absolutely made up and closed. We'll watch this very carefully, keep an eye on it and try to address issues that arise if it turns out to be necessary.
HORSLEY: And that caution is understandable. The University of Chicago asked a bunch of economists if they think prolonged inflation is a serious risk. About 4 in 10 said they're really not certain.
MCCAMMON: A lot of uncertainty is something financial markets don't tend to like. How are markets reacting?
HORSLEY: Well, the markets seem to think that this argument that higher inflation is a passing fad is a good one. Investors did get a little spooked a month ago when the April inflation numbers came out, but they've calmed down since then. And the markets seem reasonably happy with what they're seeing today. You know, the price hike between April and May was smaller than the jump between March and April. So that could be a sign that inflationary pressures are easing up a bit.
MCCAMMON: NPR's Scott Horsley. Thanks so much, Scott.
HORSLEY: You're welcome.
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