Rising prices for many products as virus recedes, need pushes

Consumers are paying more for a range of products, including bacon, blouses and second-hand Buicks, as the economy rebounds strongly from the Covid-induced recession with massive help from Congress and the Federal Reserve.

The overarching question is whether these price increases will hold up – and for how long. Fed officials have so far maintained that the increases will dissipate fairly quickly, although some economists warn the trend may be more sustainable.

The costs of raw materials, such as wood, paper, steel, glass and plastic, as well as manufacturing and shipping, are rising as demand rebounds. A widespread shortage of microchips is compounding the difficulties for retailers by making it more difficult to automate supply chains and keep operations running smoothly, said Greg Portell, consumer practice partner at consulting firm Kearney.

“You have inflationary pressures on both sides: the cost of materials is increasing as demand increases,” he said. “Usually you have one or the other, but now you have both, which creates the crunch.”

The recent surge comes after years of lagging inflation. While product prices can fluctuate, policy makers generally aim to keep annual inflation around 2%.

Typically, Portell said, he expects prices to stabilize in 18 to 24 months, as suppliers and manufacturers catch up with pent-up demand for consumer goods. In the meantime, here are some of the categories where prices are climbing:

• Used cars and trucks: Cars are in high demand but scarce – and this, according to economists, is especially true for the country’s used vehicle stock. At the start of the pandemic, Americans who are wary of public transportation grabbed used cars to facilitate travel and shopping. Since then, demand has continued to rise beyond supply, in part due to a shortage of microchips and factory closures that have slowed production of new vehicles. Used car prices rose 7.3% last month.

• Furniture: Rising prices for materials such as leather, steel, acrylic and wood have pushed up the prices of desks, sofas and other furniture in high demand. Manufacturing and shipping have also become more expensive, as companies contend with overwhelmed factories and clogged ports. Retailers say just about every step in the supply chain has become more expensive and cumbersome in recent months, leading to steadily rising prices. The cost of shipping ocean freight from Asia to the United States has quadrupled in some cases, from about $ 1,500 per container to $ 6,000 last year, said Mark Yeager, Managing Director of Redwood Logistics.

• Gas: The average price of a gallon of gasoline has risen nearly 50% over the past year to over $ 3, according to the AAA. Analysts say tanker shortages and the recent cyberattack on Colonial Pipeline have contributed to a rise in crude oil prices. But demand is also on the rise, with Americans hitting the road for summer travel. Analysts say recent stimulus checks have also helped fuel the rise in consumption.

• Beef and pork: Bacon, steaks and other types of meat products become more expensive as the industry grapples with labor shortages, as well as rising grain costs and energy. Costco says it pays up to 20% more for beef than it did a year ago, in part because of rising feed and transportation costs. Demand is also skyrocketing, as restaurants reopen and countries like China and Vietnam demand U.S. pork and beef exports. Slower processing times are adding to the challenge, industry experts say. Meat processing plants have been particularly affected by the covid-19 outbreaks which have hampered operations.

• Washing machines and dryers: A shortage of semiconductors, combined with soaring steel and plastic prices, is driving up the cost of washing machines and dryers. Whirlpool recently hiked prices by as much as 12%, with executives saying rising materials prices have already cost the company $ 1 billion.

• Airfare: After a year of ridiculous fares, airfare is getting more and more expensive just in time for summer travel. Many airlines, which drastically cut flight schedules during the pandemic, are reporting an increase 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 have reported over the past year. Tariffs are already climbing to – and sometimes beyond – pre-pandemic levels. Average ticket prices for domestic travel have risen 7% since May, while international fares have risen 13%, according to financial research firm Bernstein.

• Clothing: Clothing retailers cut inventory at the start of the pandemic when it was not clear when – or what – consumers would be ready to buy again. But now that shoppers are buying shirts, dresses and suits again, stores are finding that they don’t have to offer the big discounts they once did. National chains are cutting promotions, in part to offset rising manufacturing and shipping costs. Analysts say a more complex supply chain – in part due to a rush to diversify operations to avoid tariffs – has also increased costs.

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