White House: Inflation Too High, But Moving In Right Direction
For businesses and consumers across New England, almost everything is more expensive right now and that dynamic has wide-reaching ripple effects that turn up in reports the Federal Reserve compiles from banking and business contacts.
“Retailers raised their prices somewhat in recent months in response to rising input costs and robust demand, although one experienced some consumer pushback after its latest price move,” the Fed wrote in the latest Beige Book, which summarizes recent business activity in New England and around the country.
For the companies that manufacture goods, there have been “intense input pricing pressures, with increases as high as 30 percent over the year,” especially for materials like foam, steel, aluminum, wood, cornstarch, adhesives and cardboard, the Fed reported. Some New England manufacturers have significantly raised the prices of their final goods to compensate, but the Fed said at least one of its sources “said it was trying not to raise prices.”
Down the line, retailers selling those goods are facing freight and shipping costs that have “stabilized at very high levels” and contributed further to moderately higher prices for consumers, but reports from retail contacts were “mostly positive” in the last month, the Fed said.
“A clothing retailer enjoyed a robust seasonal surge in sales above its already-strong performance in the first 3 quarters of the year, as recent sales exceeded comparable 2020 levels by low double-digit percentages,” the Beige Book’s New England report said. “A furniture seller saw revenue above pre-pandemic levels, but its sales volume dropped in recent months relative to the record-setting levels posted in the summer of 2021.”
That prices have been rising comes as no surprise to consumers. The pocketbook pressure was quantified Wednesday by the Bureau of Labor Statistics, which reported that the U.S. Consumer Price Index increased 7 percent over the last year — the steepest climb in prices since 1982.
White House officials said Wednesday that inflation is “still too high, but moving in the right direction,” citing a month-to-month deceleration.
“I would note that we saw, in prices from November to December, a decline in the rate of growth of the prices for food at home, which is a technical way of saying food that people buy in the grocery store. And we saw a drop in the price of energy, both at the gas pump but also natural gas and winter heating costs,” National Economic Council Director Brian Deese said, according to a White House transcript. “And many of you focused on the annual 7 percent rate. If we are trying to look at where we are headed, the month-to-month changes are more instructive.”
On Thursday, Council of Economic Advisers Chair Cecilia Rouse highlighted that a separate measure, the Producer Price Index showed “a slowdown in producer price increases in December, relative to the month before, and the lowest monthly increase … since November 2020.”
A tight labor market has contributed to the stress on businesses and consumers, though an economics and policy researcher told Massachusetts officials Wednesday that the jobs picture here has “improved significantly over the last year and a half to two years” but remains about 172,400 jobs short of pre-pandemic highs.
“We’re still below peak on our 2020 job numbers, but we’re approaching that and hopefully we would see full recovery at least later this year or early in 2023,” Mark Melnik, the UMass Donahue Institute’s director of economic and public policy research, said during an economic overview hosted by MassEcon.
The Fed largely backed up Melnik in the Beige Book, saying that a few of the firms it contacted “described moderate-to-aggressive hiring plans” for 2022, though at least one said it intended to shed workers this year.
Despite concerns that they would lead to a mass exodus from the workforce, the Fed said it has seen no evidence that vaccine mandates led to more people quitting their jobs in New England.
“Three contacts from diverse sectors said that it had recently become easier to hire workers, while others reported that hiring remained difficult but had not deteriorated. Elevated turnover remained a problem for several firms, but one noted that vaccine mandates had not resulted in increased quits. Wages posted strong gains on average, with year-over-year raises ranging from only slight to a robust 10 percent.”