It can be no surprise that retail prices have risen 7.5 percent in a year. COVID-19 has scared financial markets and some 3 million workers from returning to their pre-pandemic jobs. The question is what can be done about it?
“The all items index rose 7.5 percent for the 12 months ending January, the largest 12-month increase since the period ending February 1982, said the BLS. The all items less food and energy index rose 6.0 percent, the largest 12-month change since the period ending August 1982. The energy index rose 27.0 percent over the last year, and the food index increased 7.0 percent.”
Part of the confusion is what has made this inflation surge unique. Studies show that it’s mainly worker shortages due to Omicron, countries slow to recover that are part of the disrupted supply chains, and consumers with lots of savings due to the pandemic aid.
The hope is that the Fed can tame some of the inflation by raising interest rates, making borrowing more expensive, which is the conventional tool to cool down activity.
But the ultimate inflation cure is if and when the Omicron and any other COVID-19 variant eventually morphs from a pandemic into an endemic virus, like the flu.
In fact, Omicron variant infections are declining faster than expected. As of February 2, 2022, the current 7-day moving average of daily new cases (378,015) decreased -37.6 percent compared with the previous 7-day moving average (605,735), reports the CDC’s Covid Tracker. Omicron infections are sharply down from the more than 800,000 at its peak in January.
At this tempo, it could be back to last October’s rate of approximately 100,000 daily new cases in March, per the CDC graph.
More good news is that the U.S. added 467,000 jobs in January and hiring was much stronger at the end of 2021 than originally reported, The U.S. added 510,000 jobs in December instead of 199,000. And employment rose by 647,000 in November compared to the prior estimate of 249,000.
That’s 709,000 more jobs added to nonfarm payrolls in the past two months, so more workers are returning to work. Leisure and hospitality jobs are increasing, which also means more consumers feel free enough to lead a more normal lifestyle.
There are many parts to the inflation puzzle, but it’s probably safe to say that once the fear of Omicron begins to subside and more economic activity kicks in that will further boost employment—such as from infrastructure spending over the next five years that repairs and upgrades the roads, bridges, energy grids, and water systems, inflation will subside.
That leaves the housing problem with soaring rents as well as housing prices. Approximately one-third of the CPI Index is rising housing costs, a much more difficult problem to solve with the current housing shortage. So perhaps the best cure for lingering inflation should be more $$ invested in housing?
I think we should call the next Build Back Better bill, the Build Back Better Housing bill, if we are really serious about wanting housing to be more affordable.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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