Is inflation high compared to other times that prices have risen in the past? It rose 15% to 18% during some years of President Jimmy Carter’s term in office. Now, however, there have been efforts to keep prices down, particularly by the Federal Reserve. The run-up in demand for certain goods and services since the worst of the COVID-19 pandemic and an improved economy have triggered a large increase in the prices of some products, like cars.
Inflation is indeed highly dependent on product and service demand right now. The Bureau of Labor Statistics Producer Price Index shows that, overall, prices did rise sharply in July. The agency indicated that demand rose 1% from June to July. Automobiles contributed much of this as they were up 11.1%. Energy rose 26%, and the increase in food prices was uneven.
The demand for eggs for fresh use soared 19.5% from June to July. Beef and veal went in the other direction, down 16.8%. However, food prices in general are nearly out of control. Phil Lempert, an analyst and food trends expert known as the Supermarket Guru, shared with Fortune his opinion about groceries: “We’re going to continue to see price increases, probably for the next two years or so.” The Washington Post pointed out: “Groceries have been trending higher for well over a year, with the Bureau of Labor Statistics showing a 2.6 percent rise in the ‘food at home’ category compared with last year.”
What does this increase in grocery prices mean? By itself, it might not affect the spending power of Americans. When linked to prices of cars, gasoline and other commodities though, it starts to erode the discretionary income of many households. That could be very bad news as the year progresses toward the heavily consumer-driven holiday period.
The other factor in calculating consumer buying power is wages. In general, these have risen this year. That means over the next few months, the battle between earnings and what people have to pay for basic goods and services will tell how the consumer economy tracks for the next several months.