As the choices get tougher, Minnesotans wonder when the price hikes will end
At Kari Merritt in Farmington, the air conditioning rarely works. The shampoo bottles are squeezed to their last drops. The car remains parked.
Paying for all of that costs a lot more these days, as Americans are suffering the highest inflation since the early 1980s.
“Every aspect of our lives is being affected right now: where we’re going, what we’re doing, what we’re eating,” said Merritt, 38 and mother of five. “I don’t know if there is a light at the end of the tunnel.”
She’s not alone in wondering when this period of rising prices will be over and the trade-offs and trade-offs will subside.
“Gasoline, eggs, everything – it’s just obnoxious,” Merritt said.
For months, polls have shown growing concern about inflation. In May, a Pew Research Center survey found “no other concerns come close”, with 7 in 10 respondents calling it a “very important” or “moderately important” issue. And in an open-ended question about the nation’s biggest problems in a New York Times/Siena College poll this month, more respondents cited personal finances and inflation than any other issue.
After the government announced last week that the consumer price index jumped 9.1% in June, speculation resumed that inflation would begin to moderate.
“There’s hope on the horizon that it’s not going to keep getting worse,” said Mark Bergen, a professor at the University of Minnesota who studies inflation. “But exactly when and how I’m not sure anyone knows exactly.”
This uncertainty is troubling, he added, especially after two anxiety-provoking years of the pandemic. Here’s a look at what could finally put an end to current inflation:
The supply of goods is improving
Production of many goods slowed sharply as the coronavirus spread around the world two years ago. And producers, shippers and distributors couldn’t catch up quickly when demand soared as vaccines brought the pandemic under control last year.
This imbalance between supply and demand – described with terms such as “supply chain” and “logistics” – has taken much longer to correct itself than economists thought. Newer strains of the coronavirus and the war in Ukraine have added to these challenges.
In an interview last week, Neel Kashkari, chairman of the Federal Reserve Bank of Minneapolis and a member of the central bank’s committee that sets interest rates, said he was surprised at the empty shelves he still encounters in stores. .
“I was at Walgreens yesterday walking around and there are different categories of empty spaces,” Kashkari said. “I was like, ‘What’s going on that these companies are still struggling to fill the shelves?’ It’s a headache for me, but it’s real.”
But there could finally be a pause in the oil and gas sector, which has been the main contributor to the inflation equation in the United States. Since peaking in May, oil and gas prices have fallen. In Minnesota, an average gallon of regular gasoline hit a record high of $4.76 on June 15. On Friday, the average gallon had fallen to $4.55.
“It’s more or less the market that can hold,” said Patrick De Haan, head of oil analysis at GasBuddy, who predicted gas prices could fall below $4 a gallon in August. “We could still be one major disruption away from seeing this prediction derailed.”
Prices of other commodities, such as corn and wheat, have also fallen in recent weeks. Even so, it will take time for these declines to trickle down to prices paid by consumers.
“It’s elevators going up, stairs going down,” said Northstar Commodity analyst Jason Ward. After falling to record lows, the cost of corn and wheat is reaching a sweet spot where producers are making enough money without disrupting demand, he said.
“Lower commodity prices are very good for the economy because it can help us avoid going into a recession,” Ward said.
demand is falling
The Federal Reserve attempts to break inflation by reducing demand for goods and housing. It does this by increasing the cost of money through higher interest rates. The central bank has raised them three times so far this year and is expected to do so again this month and in the fall.
There are signs the Fed’s measures are starting to work, said Matt Schoeppner, senior economist at Minneapolis-based US Bank. Consumers are reducing some purchases, inventories are starting to rise and financial conditions have tightened.
But June’s dismal inflation report could cause the Fed to raise rates even higher and faster than expected. It could throw a wrench in hopes of a so-called “soft landing”, in which the economy slows but does not fall into a recession.
“The idea of that is getting harder and harder,” Schoeppner said, adding that he now views the odds of a recession occurring over the next 18 months as “virtually a draw.”
In Kashkari’s view, the more the economy relies on Fed rate hikes to solve its problems, the greater the risk of overshooting into recession.
“If we have to do all this adjustment to drive down demand, it dramatically increases the likelihood that we don’t have a soft landing,” he said.
Wages are catching up
Consumers might feel better if wages keep pace with inflation. But that’s not happening, and for most workers it’s unlikely to happen. The average hourly wage has decreased by 3.6% over the past year, taking into account inflation.
Although this is painful for workers, Schoeppner pointed out that it also helps to reduce prices. “It’s something that I think needs to happen in order to reduce all of this excess demand that has built up over the last couple of years,” he said.
Without more money to spend, consumers will continue to cut costs and, in some cases, decide which bills will be paid. Energy Cents Coalition executive director Pam Marshall said low-income Minnesotans face a “heat or eat” dilemma.
“Current circumstances are disproportionately harmful to low-income people and their ability to meet basic needs like energy costs, feed their families and get to work due to high gas costs,” Marshall said. .
The worst result
Many forecasters believe that inflation will decline to the Fed’s target of around 2%, or close to it, over the next few years. But some skeptics believe inflation won’t fall as fast as many economists and Fed officials have predicted for months.
“The sobering thought we should have in the back of all of our minds is that we’ve been hearing the same tune for the past 18 months,” said VV Chari, an economist at the University of Minnesota. “This time they may be right, but they’ve been wrong so far.”
What the Fed doesn’t want to see is a wage-price spiral in which workers start demanding higher wages to meet higher prices, leading companies to raise prices further, and so on. . Then, high inflation would become more entrenched in the economy and more difficult to dislodge.
Right now, with job vacancies far outstripping the number of people looking for work, employers are expected to keep raising wages. “While there is a lot of talk about labor market concerns and layoffs, we are not there and we really need people,” said Katie Denis, vice president of the Consumer Brands Association, a group of manufacturers.
In the meantime, consumers continue to make tough decisions to save money. Madeline Bostrom, who stays home with her two young children in South St. Paul, said the biggest pain of high inflation is not being able to take her children to see their grandmother as often.
“Visiting my mom is no longer an option because she lives an hour and a half away,” Bostrom said while shopping for back-to-school clothes. “I can’t afford the $40 round trip it would cost.”