Americans should brace for a very expensive summer as the price of everything continues to shoot higher and higher. From corn to soybeans to sugar, and sunflower oil, as well as plastic, steel, gasoline, lumber, houses, cars, diapers, and toilet paper – everywhere you look, prices are just exploding. As the economy reopens, global supply chains are still deeply struggling to keep up with the unprecedented demand. Following last year’s economic collapse, after businesses were shut down and millions upon millions of workers lost their jobs, consumer demand dropped to record lows. But now, demand has rebounded with a vengeance, boosted by trillions in government stimulus that ended up sharply deteriorating Americans’ purchasing power. Companies are also being impacted by shortages and soaring prices. Many of them put their workers on furlough during lockdowns last year, and now they are unable to secure enough raw materials to manufacture the products, make the cars, build the homes or assemble the appliances are suddenly in high demand.
At this point, American consumers already absorbed a huge surge in prices. In May, overall consumer prices went up by 0.6% over April and 5% over the past year, the biggest 12-month inflation spike since 2008. And while restaurants prepare to receive customers back this summer, at least nine fast-food chains and restaurant companies surveyed by Reuters said they are experiencing shortages of key ingredients and products. Food supply shortages are not only affecting people’s grocery bills but the very existence of some restaurant locations. Some Starbucks locations are being closed down across the country due to widespread shortages that include cups, straws, peach-flavored juice, and oat milk. For other chains, ketchup packets have become really hard to find.
As a consequence, a dearth in supply is leading some restaurants to boost prices on their own menu in an attempt to stay in business. This week, Chipotle Mexican Grill announced it would raise menu prices by at least 4%. Undoubtedly, it is going to be a muggy summer on the inflation front. That’s what Gregory Daco, chief U.S. economist at Oxford Economics, has recently noted. He said that the pass-through from higher goods prices to higher prices for services is just beginning. In face of all that, if anyone still believes that inflation is going to be temporary is because they don’t know or don’t understand how serious this crisis is getting.
Our current monetary policies have created such profound imbalances between supply and demand that even Fourth of July celebrations are going to be affected by a shortage of fireworks and higher prices. “Prices are going up across the board,” said William Weimer, vice president of Phantom Networks, one of the largest consumer fireworks brands in the US. “It’s impacting everyone in our industry. Nobody expected this hangup in logistics. We have companies that have never worked with us before coming to us for supplies. People are scrambling to get supplies, and we just have enough to stock our own shelves.”
And the problems U.S. consumers will face over the summer don’t end quite there. Appliances such as air-conditioners are by 12% this year. Prices for washing machines and dryers have also shot up 26% from a year ago, and major appliance makers including Whirlpool have announced across-the-board price increases. In the meantime, the Federal Reserve continues to insist that all of these increases will soon fade away. Politicians and policymakers are actively trying to make our society believe this is just a momentary crisis. But all evidence is pointing to years and years of painful inflation.
In fact, a recent survey found that for Americans earning the minimum wage, rising inflation is making their dollar the weakest it’s been in more than a decade. The broad upswing in consumer prices and the enormous expansion of our money supply has been translated into the lowest minimum wage since 2008 in relation to current inflation levels, meaning that millions of low-income Americans are the poorer they have been in decades. Living costs surged again last month, driving inflation to a 13-year high of 5%, making economists worry that we could soon witness runaway inflation just as seen during the oil shocks of the 1970s.
It’s just infuriating to know that in one year politicians and policymakers effectively contributed to making a huge part of our society poorer while taking credit for their “generosity” of distributing stimulus money. At the end of the day, that money didn’t offer a proper safety net for those who needed it the most because it mostly ended up in the hands of wealthy investors. Now, we are headed to a summer of painful inflation, extremely high prices, shortages of essentials and an economic deterioration Americans have never experienced in their entire lives.
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