Should Americans be concerned with rising inflation?
The consumer price index rose 5 percent in May on a year-over-year basis, the highest since the summer of 2008. Many Americans are nervous about inflation, but Fed officials say it is temporary and Wall Street does not seem overly worried. Some economists say the inflation jump is mainly in a few sectors and not a widespread problem. Still, if the average consumer is trying to buy a used car right now  one of the biggest areas of inflation increases  they are sure to be frustrated by substantial increases. Advertisement  Norm Miller, University of San Diego  YES: Americans should plan for increasing inflation rates, increasing interest rates, higher labor costs, and higher oil prices. Some prices affected by supply chains, like lumber are likely to come down over the next few quarters. This is a great time to borrow and lock in longer term fixed rate debt. Interest rates will likely stay low for the next two quarters, but with higher labor costs, the Fed will likely raise rates in 2022 and markets will react. Jamie Moraga, IntelliSolutions  YES: Inflation hit 5 percent in the past year, the fastest pace since 2008. Due to increased demand, we are experiencing shortages and higher prices. Higher government spending (multiple trillion-dollar economic stimulus packages) and deficits also contribute to increased inflation. Whats unknown is how long it will take for the supply chain to readjust and inflation to normalize. If inflation gets too high, the Fed will likely raise interest rates to try to slow the economy. We should be concerned as inflationary growth is often followed by a recession. David Ely, San Diego State University  NO: Inflation will be elevated in the short term since current prices are high relative to their depressed levels in the early stages of the pandemic one year ago. Also, supply-chain disruptions and unfilled job openings are constraining the supply of a number of products as the economy reopens and pent-up demand surges. But, inflation should moderate as these circumstances ease over time. However, over the next year, Americans should continually reassess inflation risk. Ray Major, SANDAG  YES: With more than $5.3 trillion pumped into the economy in the last year and more to come, there is a real risk that inflation will become a concern. That amount of spending equates to more than $16,000 for every American. As businesses struggle to hire workers and unemployment rates remain high in part due to stimulus payments, the cost of doing business will ultimately be passed on to consumers  resulting in inflation. Advertisement  Reginald Jones, Jacobs Center for Neighborhood Innovation  YES: Inflation should always be a concern. We are seeing warning signs occurring  particularly rising costs in goods, services and production. However, a good indicator is treasury yields and commodity prices. We have seen jumps in both since the market bottomed out in April. This gives some cause for concern. However, data says both are hovering below highs just in front of the COVID-19 pandemic downturn. While positive for now, both certainly bear watching. Lynn Reaser, Point Loma Nazarene University  YES: Americans face sizable price jumps over a wide range of goods and services, including gas, food, airfares, cars, apparel, and restaurant meals. Increasing vaccination rates and economic reopening are pushing demand sharply higher while supply is struggling to catch up. Shipping logjams, weather disruptions, semiconductor constraints, and labor supply adjustments are all factors. Supply should catch up to demand, causing inflation to moderate, but there is no guarantee and, for the time being, higher inflation will hurt. Advertisement  Kelly Cunningham, San Diego Institute for Economic Research  YES: Consumer prices as of May 2021 rose by the highest rate recorded in 13 years (using measurements often underestimating actual price increases). Some goods specifically indicate much higher jumps, including used vehicles, food and transportation prices. Price inflation essentially confiscates a portion of income, meaning we are somewhat poorer now than a year ago. Although nominal wages of some workers have risen, raises are largely canceled by higher prices. 1970s-style stagflation is a likely outcome. Phil Blair, Manpower  NO: This high inflation rate is a direct result of the federal government pumping trillions of dollars of stimulus into the floundering economy. But it will need to be closely monitored as issues like inflated pay rates, used to combat the $300 unemployment supplement when thousands of businesses quickly reopened and needed employees. If the pay rates do not moderate themselves then it can be very inflationary. Advertisement  Gary London, London Moeder Advisors  YES: While the inflation rate is likely to subside in the coming months, few sectors will be willing or able to undo their price increases. Prices have increased in housing, restaurants, food and in many other sectors. Most are owed to COVIS-related supply-side disruption. Salaries arent going back down. No one is going to take a hit. The best we can hope for is a reduction and a stabilization in the rate of the increase. Alan Gin, University of San Diego  NO: A year ago, the economy was still near its bottom, which put downward pressure on prices, especially oil prices. West Texas Intermediate crude was at $28.56 a barrel in May 2020 and is now over $70, affecting other prices. A similar situation exists for other goods and services that were depressed during the pandemic, such as airline fares. Disruptions in supply chains and scarcity resulting from businesses reopening all at once also contributed to inflation, but pressures will subside when the economy returns to normal. Advertisement  Bob Rauch, R.A. Rauch & Associates  YES: Americans should be concerned about inflation for several reasons; we will be seeing a significant increase in gas prices based on our new policies on oil exploration and other Middle East policies, lots of inflation in consumer prices across the board due to increased wages and very strong demand driven by consumer confidence. Inflation is not measured by bond markets, rather by actual spending. Costs are going up and not marginally. Austin Neudecker, Weave Growth  YES: As an eager economy bursts back to life, we are seeing prices spike. Pent-up demand combined with uneven progress around the globe also cause short-term supply problems, many of which will subside over time. However, the creation of trillions of dollars in (likely necessary) aid by many countries will have a more gradual yet pervasive and lasting effect on prices. Rather than the typical 1-3 percent, I would not be surprised to see 2-5 percent for a couple of years. Advertisement  James Hamilton, UC San Diego  YES: Weve had massive fiscal and monetary stimulus in the face of serious supply constraints, which is the textbook recipe for inflation. The Federal Reserve is behind the curve in responding and will not find it easy to control the forces that are already in play. A big unknown is the way that Internet message boards, such as Reddit, and rapid asset transfers could make the situation worsen quickly if people start to lose faith in the dollar. Chris Van Gorder, Scripps Health  YES: An inflationary psychology has not developed among the public, based on the latest University of Michigan survey of consumer inflation expectations. Thats despite a 5 percent inflation rate in May, the highest since 2008. And I understand the publics thinking to a point, because that rise in inflation is transitory  recent higher prices for items such as used cars, houses and airfare are because of a temporary supply and demand imbalance. But, I believe that increases in wages, commodity prices and transportation costs could become a more lingering inflation concern. Email me at phillip.molnar@sduniontribune.com. Follow me on Twitter: @PhillipMolnar