RALEIGH, N.C. (WNCN) – Your grocery store receipt is not wrong.
As of Thursday, year-over-year CPI inflation hit a rate of 7.5 percent. That’s a 40-year high.
“The bottom line is that everything you buy on a daily basis is going up in price, and it doesn’t look like that is going to change in the foreseeable future,” said Connel Fullenkamp, a Duke University economist who specializes in financial markets.
“The really striking thing about the inflation numbers is not just that they’ve gone up so much. It’s they’ve hit the the things that everybody buys — groceries, gas, utilities. You know, all the basics in life are going up very steeply in price,” he said.
Added to that is pent up consumer demand.
“People still are sitting on a lot of money that is leftover from the stimulus package, and so they’re spending that money pretty freely,” Fullenkamp said. “They’re less sensitive to prices increases. For years and years and years, people would basically walk away from prices that had gone up, and now they have money to spend and they’re not doing that.”
Price increases are putting pressure on employers who are having trouble retaining employees and hiring new ones. That is one of the factors that is having an impact on the supply chain.
“Some way of looking at this over the last year prices have gone up 7.5 percent. If your wages and salary and earnings haven’t gone up 7.5 percent, then you’re falling behind. Your standard of living is going down and people get that,” said Michael Walden, a William Neal Reynolds Distinguished Professor and Extension Economist at North Carolina State University.
The economy and the Federal Reserve are starting to walk a delicate, if not dangerous, tightrope.
“Economists have a term for this. It’s called the wage-price spiral. Because the prices go up, that requires workers to require higher wages. When wages go up, that feeds into the price of products, so you get an even higher level of inflation. That’s a very tough cycle to break,” Walden said.
Fullenkamp added: “If people expect prices to rise, then they react less when prices do rise. They start to build that into their behavior. They start to build that into their wage demands and we start to get this wage-price spiral we haven’t seen in 40-45 years.”
While home sales are not factored into the CPI, rental costs are. The demand on available apartments in the Triangle continues to increase as the housing market remains tight. This is only expected to worsen as companies paying high wages, like Apple and Google, ramp up hiring.
“It’s not just catching up, and that’s a big part of the equation here. We just don’t have the kind of home building and apartment construction to accommodate all the folks that are going to come in here and take the new jobs,” Fullenkamp said.
What the Federal Reserve chooses to do regarding interest rates will have to be watched closely.
“The federal reserve knows what they need to do, but they never really know how much they need to do. And if they overdo it, slower growth could turn into negative growth and that is a recession. So I think we have to have our eyes open to that possibility toward the end of the year,” Walden said.
