Inflation is back, and consumers have noticed.
Consumer prices in April rose by the most in 12 years, as product shortages conspired with strong demand by consumers emerging from the coronavirus pandemic. Annual inflation is now 4.2%, a pace economists expect to persist and maybe rise further during the next few months.
Household budgets are suffering. In a new Yahoo Finance-Harris poll, 53% of respondents say their household income is failing to keep up with inflation. Fifteen percent say their income has risen by less than inflation during the last year, 28% say their income has flatlined and 10% say it has fallen. Eighteen percent say their income has risen by more than inflation. Harris polled 1,719 American adults from May 7-10.
Consumers see the prices of goods rising more than services, which generally tracks with inflation data. In the poll, 78% of respondents said the price of goods has risen during the last year, while only 15% say prices have not risen. The numbers are lower for services, with 56% seeing price hikes and 25% not seeing them.
[Read more: 3 things that saw the highest price increases this month]
Labor Department data does show higher inflation for goods than for services. The annual inflation rate for durables such as cars and appliances surged to 7.3% in April. There's been a huge jump in used car prices, up 21% during the last 12 months. Gasoline prices are up 50%, though that's compared with a low point during the nationwide coronavirus shutdowns last year, when travel plummeted.
Nondurables such as clothing and office supplies are up by 6.5%. The cost of services, by contrast, has risen by just 2.6%, which probably reflects soft demand as some consumers remain reluctant to leave home, with coronavirus still present.
As for particular categories, 69% of poll respondents said the price of fresh food has risen during the past year, while only 23% say it has stayed the same. Sixty-four percent say the cost of household goods such as cleaning supplies and pet food has risen, while 50% report higher utility costs.
There’s some good news embedded in the inflation data. Forty-one percent of poll respondents say health care costs have stayed flat during the last year, while only 39% say they’ve risen. The data supports that. Health care inflation is just 1.5% during the last year, a rare break for consumers who normally struggle to pay for insurance and out-of-pocket expenses. That, too, could reflect weak demand as people put off non-emergency care until they feel more comfortable going out.
Phone and Internet bills seem to have moderated, with 44% saying they’ve gotten more expensive, but 45% saying they haven’t. Same with non-medical insurance for things likes cars and homes: 38% say the cost has gone up, but 43% say it hasn’t.
Older Americans getting hit harder
There’s a generational quirk in attitudes toward inflation: higher prices seem to be hitting older Americans harder than younger ones. Among those aged 55 to 64, for instance, 83% say goods have gotten more expensive during the last year. But only 70% of those aged 18 to 34 feel that way. Harris researchers hypothesize that young people are in some way sharing expenses with their parents, blunting the impact of inflation.
A key issue for President Biden is whether price pressures are temporary or likely to be lasting. Many economists think distortions caused by the coronavirus pandemic are generating temporary price hikes that will abate by later this year. Carmakers, for instance, didn’t anticipate strong demand and therefore underordered components such as semiconductors, which has now caused supply shortages and higher prices. Lumber mills didn’t foresee a surge in home improvement that has sent demand for wood products skyrocketing. As supply picks up, prices are likely to settle down.
Financial markets are nervous all the same. Economists have been predicting higher inflation for weeks, but stocks still sank on news of the big jump in April prices. Inflation isn’t inherently bad for corporate profits, but it could force the Federal Reserve to raise interest rates sooner than expected. That raises borrowing costs, which can depress growth. In the Yahoo Finance-Harris poll, 24% say their financial situation is worse than it was a year ago, while only 16% say they’re better off. Inflation makes hardly anybody feel like they’re getting ahead.
Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email.
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