MARY LOUISE KELLY, HOST:
If you have rented a car or bought an airplane ticket or just picked up a steak at the supermarket lately, you know prices are going up. In fact, consumer prices are climbing at the fastest pace in 13 years. Higher inflation is an unpleasant side effect of the economy's rapid rebound from the pandemic. Watchdogs at the Federal Reserve say it is likely to be temporary. Let's see what NPR's Scott Horsley has to say. He's here now.
SCOTT HORSLEY, BYLINE: Good to be with you, Mary Louise.
KELLY: So the I-word here - inflation. We got some new numbers today. The Labor Department issued its monthly inflation scorecard. What does it tell us?
HORSLEY: Yeah, it tells us that prices are climbing even faster than most forecasters had expected. Prices in June were 5.4% higher than a year ago, and they jumped almost a full percentage point in just the last month, from May to June. As you said, this is a byproduct of an economy that is growing fast. And we've seen a lot of consumer demand as people get vaccinated and take vacations and enjoy all the things they couldn't do during the worst of the pandemic.
A lot of businesses, though, are struggling to keep up with that demand. They don't have the parts. They don't have the people. So prices are going up. Ian Shepherdson, who's with Pantheon Macroeconomics, says a lot of the inflation that's reflected in this June report is tied to that reopening bounce.
IAN SHEPHERDSON: There's a lot of stuff in there which has got COVID stamped all over it. And when you strip those components out, the inflation rate is nowhere near as scary as the headline numbers appear.
HORSLEY: A good example is used car prices, which shot up more than 10% just last month. Used cars have been in high demand for several months now because, of course, it's hard to get a new car because of that semiconductor shortage we've been talking about. In just the past few weeks, though, the price that dealers pay for used cars has started to come back down. And we expect the prices that consumers pay at used car lots around the country will also start to decline in the months to come.
KELLY: And what about beyond used cars, Scott?
HORSLEY: Yeah. Used cars were a big chunk, accounting for more than a third of overall inflation last month. But other price hikes are reflected in these numbers as well. A lot of them show the rebound in travel demand, for example.
HORSLEY: The price of hotel rooms was up almost 8% last month. Airfares are up. Rental car prices are up. But we're also seeing higher prices pretty much across the board. You know, businesses that are having to pay their workers more or pay more for supplies are, in many cases, passing those higher costs on in their own prices. If that were to continue, we could get into an inflationary feedback loop, where wages go up so prices go up, so wages go up and so on. That's not what most forecasters expect in this case, but it is what we saw back in the 1970s.
KELLY: I mentioned watchdogs at the Federal Reserve, of course, keeping a close eye on this. What else are they saying?
HORSLEY: Yeah. The Fed chairman, Jerome Powell, is set to appear before congressional committees both tomorrow and Thursday, and he's sure to be asked about inflation. He has argued repeatedly that prices are likely to stabilize once some of these pandemic bottlenecks come unstuck and once this post-pandemic demand kind of settles back down.
The Fed chairman has acknowledged, though, there is a lot of uncertainty in that forecast. And Ian Shepherdson agrees. It's just hard to know for sure right now if this surge in prices is a passing phase, as the Fed argues, or the beginning of a more lasting inflationary spiral.
SHEPHERDSON: Unfortunately, much as we would all like answers, you know, by tea time, it just doesn't work like that, especially in these really very unprecedented circumstances. We all have to wait. And markets aren't very good at waiting. Economists aren't very good at waiting. I think the Fed's a bit better at waiting. But we all have to wait because these questions cannot be answered by the information that we have now.
HORSLEY: The stock market did not seem particularly rattled by today's inflation report. The major market indexes were down but only by a fraction. Last month, Fed policymakers did raise their forecast for inflation this year to 3.4%. But by next year, they expect that to be back down to around 2%
KELLY: Thank you, Scott.
HORSLEY: You're welcome.
KELLY: NPR's Scott Horsley.
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