Deborah Widger of Queens, New York, normally rents a car to drive to the Philadelphia area to visit her parents several times over the summer.
But she says rental car prices are up 20% to 30% since her last visit and a three-day weekend rental would cost $500.
“I’ll take Amtrak,” says Widger, a retail consultant who lost her clients because of the pandemic and lives on enhanced unemployment benefits.
Consumer prices jumped 4.2% annually in April, the most in 13 years, sparking this question: Is it a blip or a harrowing return to the 1970s?
It isn’t just the usual culprit: gasoline. Pump prices have soared 50% from a year ago, but a core inflation reading that strips out volatile energy and food items increased 3% annually, the largest advance in 25 years.
Surging prices for used cars, airfares
Some of the price increases were eye-popping, particularly in an economy that has struggled for years to approach the Federal Reserve’s 2% annual inflation target. From March to April, used car prices climbed 10%; airline fares, 10.2%; hotel rates, 7.6%; car rental prices, 16.2%; admission to sporting events, 10.1%; household furnishings, nearly a percentage point; and car insurance, 2.5%.
Again, these are monthly increases.
“This is remarkable,” says Ian Shepherdson, chief economist of Pantheon Macroeconomics.
Could interest rates rise again?
The outsize surge is raising questions about Fed Chair Jerome Powell’s belief that the COVID-19-induced price spike is temporary. That outcome would probably keep the central bank’s key interest near zero until 2024, at the earliest.
A more enduring bout of inflation could spook consumers and force the Fed to hike rates sooner, pushing up mortgage rates, among other borrowing costs, and crimping the recovery from the coronavirus recession.
Many economists side with Powell, arguing the leap in prices is a byproduct of a reopening economy and should abate by next year. That contingent notes that consumer and business inflation expectations – a critical factor that determines how rapidly prices rise – remain stable.
“The economy should go back to a footing that’s more normal” by this year or 2022, says Bill Adams, senior economist at PNC Financial Services Group.
Others say the rise in prices could last longer.
“Given the breadth of the upward pressure on both prices and wages, we believe this will develop into a sustained wage-price spiral,” economist Paul Ashworth of Capital Economics wrote in a note to clients last week.
Eighty-three percent of Americans are somewhat or very concerned about the acceleration in prices, according to a Harris Poll survey for USA TODAY conducted April 30-May 2. Sixty-four percent of respondents say they’re finding higher prices for food and groceries; 61%, for gasoline; 46%, for restaurant meals; 43%, for personal care items; and 38%, for household appliances.
Widger, a baby boomer, is feeling the higher inflation in more than rental car costs. She ventured back to Target and found prices for sandals and other basic shoes had risen 20%, and baseball caps cost $15, up from $10. Instead of plunking down her usual $60 to $100, she spent $37.
“I haven’t been in a store in 15 months,” she says. “I really had sticker shock.”
Here’s why prices have risen so sharply and why many economists say the episode will soon fade.
The big plunge
Prices tumbled last spring as the pandemic led states to shut down their economies. That’s boosting yearly inflation because today’s prices appear lofty compared with a much lower base. That effect won’t be as pronounced by fall since energy and other commodity prices began rising by the second half of last year, Adams says.
New ways of shopping could stick:Whether it’s ordering dinner or buying more skin products, our shopping habits changed amid COVID-19
As more Americans are vaccinated, states are lifting restrictions. The U.S. economy is likely to be fully open by summer. People are eager to travel, Ashworth says, as they “finally get to use their saved vacation days and try to make up for lost time,” pushing up airline fares, hotel rates and car rental prices.
The burst of activity will last only so long, Adams says, causing price increases to moderate. The cost of goods and services unrelated to the reopening – such as rent, medical care, clothing and groceries – increased more modestly last month, Ashworth and Shepherdson note.