Consumer Inflation Concerns VS. Government’s Stance on Price Increases

As the nation’s economy continues to emerge from the grip of the COVID-19 pandemic, concerns are that the five percent inflation rate increase in May’s Consumer Price Index (CPI) from the previous year is signaling the start of a potentially even greater spike.

Consumers express concerns that their hard-earned paychecks will not be enough to cover rising expenses for the rest of this year as the rules of supply and demand react to a marketplace that overall has more demand for good and services than are available.

The head of one of the nation’s largest consumer goods distributor, Costco, summed up retail’s view of consumer concern this way when asked if he agreed with predictions by the Federal Reserve that current inflation rates are merely “transitory” and should settle later this year.

“We’ve heard a lot of questions about inflation over the past few months,” Richard Galanti, CFO of Costco, shared in a June company earnings call as reported by yahoo!finance. “There have been and are a variety of inflationary pressures that we and others are seeing. Inflationary factors abound.”

Galanti’s list of products with inflation written all over them: aluminum foil, beef, and paper goods.

And The Survey Says …

Civic Science – a Pittsburgh-based data polling company, released a survey in March showing that 77 percent of Americans age 18 and older were concerned about inflation increasing with 42 percent reporting as “very concerned.”
Interestingly enough, inflation concerns were greater among younger Americans. Fifty-two percent of those age 18 to 24 indicated “very concerned” as compared to only 37 percent of those age 55 and older.

Research from the University of Michigan documented that consumer confidence fell five percentage points in May 2021 from the prior month.

Richard Curtin, a UM research professor in charge of the university’s Survey Research Center, Institute for Social Research, measures consumer confidence monthly. Factors he considers include consumer attitude, behavior, and expectation regarding the nation’s leading economic indicators. His work – which began shortly after the 9/11 attacks – is part numbers and part psychology as he seeks to document how Americans “feel” about the economy and how it relates to their own lives.

A five-point drop is considered significant – one of the largest in 50 years of data taken from other sources marking consumer confidence prior to 2001.

He blames inflationary fears.

“It (the drop in consumer confidence) was firmly grounded in their (consumers) experiences in their own economies,” Curtin told WDET 101.9 FM, a Detroit NPR station when discussing where the consumer confidence drop came from. “In terms of local home prices, vehicle prices and prices of large household durables,” Curtin continued offering specifics as to which consumer products with increased price tags ignited consumer concern.
A mid-June 2021 inquiry conducted jointly by the Center for American Political Studies at Harvard University and Harris poll documented 85 percent of Americans are “somewhat concerned” about inflation. Furthermore, four of every ten respondents said they did not believe the federal government can rein inflation in should it start on a runaway course.

Not What the Government Says

Yet, Janet Yellen, former chair of the Federal Reserve – the nation’s central bank system that implements economic policy – and current U.S. Secretary of Treasury, doesn’t seem to be as intimidated by potential inflation as the average consumer.

In a recent interview with Bloomberg, Yellen indicated that a bit of inflation isn’t necessarily a bad thing for the economy.


Here’s a bit of context:

She said this in early June 2021 upon returning from a meeting to discuss worldwide inflationary concerns and global recovery from COVID-19’s economic stranglehold with European economic allies in London. Yellen was asked if she thought President Biden’s $4 trillion infrastructure proposal might trigger higher inflation.

Here’s what she said: “If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view.”

Jerome “Jay” Powell, Yellen’s predecessor at the Fed and a holdover from the Trump Administration, has repeatedly testified before Congress that his agency is keeping its eye on the prices of consumer goods as well as interest rates for money lending as the nation’s economic recovery continues.

On June 22, 2021, Powell told a congressional oversight committee that he believed May’s price increases were due to bottlenecks in supply and demand and that, “he expects recent price spikes will soon subside and reduce inflation to a sustainable level.”

A Financial Advisor Weighs In

Jeremy Keil, a financial planner with Keil Financial Partners based in Milwaukee, Wisconsin, has 17 years of experience as a financial advisor. He is one of only six advisors in Wisconsin to have obtained both the CFP (Certified Financial Planner) and the CFA (Chartered Financial Analyst) certification.

His take on the status of inflation in the United States is that inflation has been a concern of his clients throughout his entire career.

JK head“Yet for the whole 20 years, the U.S. hasn’t seen excessive inflation, even after the huge expansion in the federal balance sheet in the 2009 timeframe,” Keil told Advisors Magazine. “Some people have gone so far as to buy gold or oil type funds to protect against inflation. The number one piece of advice I have is that people tend towards focusing on one specific risk to their investments and when they make changes to their investments to combat that one specific risk, it exposes them to all of the other risks that are out there.”

Instead, Keil believes clients should consider their investments and economic picture as a whole and not in parts.

“A good portfolio will help you survive if there is inflation, and if there isn’t, if the market tanks and if the market skyrockets,” he said.

Inflation-proof…so far.

So has inflation left anything unscathed? Well, the cost of a vowel on the game show Wheel of Fortune has not succumbed. Contestants have paid $250 to buy a vowel since the show's first episode aired Jan. 6, 1975. Vanna White, the show's veteran letter turner recently told viewers of The Drew Barrymore Show that there are no plans to increase the price.



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