Is it time to worry about inflation?
A blast of economic activity triggered by the end of COVID restrictions has sent prices for a variety of products and services skyward. High inflation could derail the recovery, and, in an unlikely worst-case scenario, bog down the economy for years as it did in the 1970s and early 1980s. Advertisement  Its enough to cause a nervous consumers blood pressure to jump like the price of lumber, which, by the way, was up 15.5 percent last month. But dont freak out  yet. While economists are becoming more concerned about the potential for prolonged high inflation, many still expect the price spikes are a temporary result of surging consumer spending  fueled in part by government stimulus money  causing short-term bottlenecks in supply chains. Theres already evidence this is happening, with some commodity prices coming back down to earth. We cant turn the economy off and then turn it on and think its all going to run smoothly with the complexities we have, said William Spriggs, an economics professor at Howard University and chief economist at the AFL-CIO organized labor federation. This was just to be expected.  Officials in the Biden administration and at the Federal Reserve share that view and assert that the high inflation will be short-lived. I cant give you an exact number or an exact time, but I would say that we do expect inflation to move down, Fed chairman Jerome Powell said Wednesday. Nonetheless, Powell and other Fed monetary policy makers on Wednesday significantly upped their inflation projection for this year to 3.4 percent, and indicated they could start increasing a key interest rate sooner than expected to slow economic growth. However, Powell noted that by next year Fed officials believe inflation will settle at 2.1 percent, just slightly above the central banks ideal level. But, if it continues to run high, Powell said the Fed wouldnt hesitate to use our tools to address that.  Advertisement  In the meantime, the rapidly rising prices are tough to swallow  and some people are getting worried. Consumers expect inflation to be much worse a year from now  4 percent, more than double the annual average from 2010-19, according to a survey released this week by the Federal Reserve Bank of New York. Paul Turano, owner and executive chef of Cook restaurants in Newton and Needham, said beef costs have risen so much that he had to increase the price of an 8-ounce steak entre to $35 from $29. Hes also had trouble luring workers and has increased his starting salary to $18 an hour, from $15. Were paying everyone more and our profits are even less than they were before, which were low, Turano said. Things have just gotten so insane.  Economists had warned that inflation would jump in the short term as vaccinations increased, the economy began to reopen, and Congress enacted a $1.9 trillion COVID rescue bill in March. One reason for that jump is a statistical anomaly: comparisons to last year are skewed because prices plummeted when the nation locked down. They were up 24.1 percent in May from a year earlier, but are still below their average level in February 2020. Advertisement  As the economys opening back up again, prices are now moving back toward normal levels in leisure, hospitality, airfares, and the like, Treasury Secretary Janet Yellen said at a Senate Finance Committee hearing Wednesday. Still, she conceded inflation this year would be higher than the administrations earlier estimate of 2 percent. And although Yellen continues to believe the price increases are temporary, she promised were going to monitor this very, very carefully.  Getting the economy back to full speed, particularly with pent-up demand and extra savings after a year when many Americans were stuck at home, presents unprecedented obstacles, said Mark Zandi, chief economist at Moodys Analytics, an economics research and consulting firm. Demand picks up faster than the supply side of the economy can respond, he said. Nobody likes to pay more for a car or for groceries or a new computer. . . . Its not desirable, but its understandable.  Ramping up production can be difficult. A global shortage of computer chips stalled new production of automobiles, causing buyers to turn to used cars. Those prices jumped 9.6 percent in April and 6.5 percent last month. The lumber industry shows the complexities of restarting the economy. Sawmills shut down because of the pandemic and prices jumped last summer as locked-down Americans took on home-improvement projects, increasing demand for soft wood such as 2-by-4 boards, said Shawn Church, editor of the industry trade journal Fastmarkets Random Lengths. Advertisement  Then demand for new homes in the suburbs and exurbs picked up, causing supply shortages for the soft wood used to build housing frames. The publications framing composite index, which has tracked prices since the 1970s, posted a record increase the first week of May, Church said. The National Association of Home Builders estimated this spring that the high prices increased the cost of the average new single family home by nearly $36,000. As bottlenecks eased, soft wood lumber prices have tumbled; last week, the index saw a record decline. Meanwhile, demand has jumped for the structural panels also used in home building. Accordingly, the Fastmarkets Random Lengths price index for those products hit a record high last week. Its significant inflation in the building materials area, said Mike Procopio, chief executive of The Procopio Companies, a developer in Lynnfield. Its absolutely crazy.  Six months ago, the company paid $300 per thousand board feet of lumber, he said. Last month, the price was $1,750. Its since dropped to about $1,000, but thats still triple what it was last year. The lumber costs for a $13.5 million apartment and townhouse project the company is building in Wilmington jumped by $1 million, Procopio said. The company is going ahead despite the added cost. But a 300-unit project in Lynn is on hold because the construction costs increased too much, he said. Advertisement  If these price spikes do not end up being temporary, President Bidens congressional agenda may end up in the crossfire. Former treasury secretary Larry Summers and some other economists warned the $1.9 trillion rescue package risked high inflation by pumping too much money into the economy. Now, Senate minority leader Mitch McConnell and his Republican colleagues are using rising inflation to argue against Bidens proposals to spend another $4 trillion on infrastructure, child care, and education over eight years. Douglas Holtz-Eakin, president of the conservative-leaning American Action Forum think tank, said the Biden administration might want to push more of the spending from those proposals out into future years to avoid adding to inflation pressures. He wasnt particularly worried about inflation in March, but is now more concerned in light of recent economic data. Its certainly stronger than I expected, so I am watching it, said Holtz-Eakin, a former director of the Congressional Budget Office. We will know in a few months if its largely transitory.  Jim Puzzanghera can be reached at jim.puzzanghera@globe.com. Follow him on Twitter: @JimPuzzanghera.