The $1 pizza is the latest victim of US inflation

Aquan Brunson, 45, from the Brooklyn neighborhood of New York, used to buy three slices of cheese pizza from 99 Cents Pizza in Utica for lunch each day. But about three months ago, inflation ate the third slice. The store has pasted a notice on the old sign that it is now “$1.50 Hot Pizza”.

“The dollar doesn’t get us very far,” Brunson said, soaking up pizza oil with paper napkins on a gray December afternoon. “The price of everything is going up.”

Consumers across the country confirm that inflation was high this year, as evidenced by used cars and more expensive furniture and the retirement of the famous slice for US$ 0.99 (R$ 5.68). But until recently, policymakers in Washington reacted to this with a common refrain: rapid price increases would likely be fleeting.

Last week, politicians said it was time to drop the adjective “passengers” and admitted that price increases are proving more persistent than expected.

Jerome Powell, chairman of the Federal Reserve, said his basic expectation is that prices will cool down, but there is a growing threat that they won’t do so soon, or soon enough.

“I think the risk of higher inflation has increased,” he said.

A new report to be released on Friday (24) will reinforce this concern. The Consumer Price Index shows that inflation grew 6.8% in the last year, the fastest pace in nearly 40 years. More worrying for the Fed is that inflation is spreading to many products and services, not just those directly affected by the bottlenecks in supply chains that have driven up the prices of cars and electronics.

Here’s a rundown of what you need to know about the price increases sweeping the United States and the world — and what to expect when the new consumer price inflation figures come out on Friday.

Inflation measures price increases

When economists and policy makers talk about “inflation,” they usually mean the increase in the price of the things people buy — accompanied by the Consumer Price Index, or CPI — or the change in the price of the things people buy they consume with their own money or through government payments and insurance, which is accompanied by the less regular rate of Personal Consumption Expenditure.

Both measures have risen sharply this year, and CPI data to be released on Friday are expected to show that inflation has seen the biggest increase since 1982. of prices by raising interest rates to double digits to paralyze business and consumer demand and cool the economy. Today, interest rates are set at near zero after policymakers cut borrowing costs at the start of the pandemic.

Price increases expand

There are many differences between 1982 and today. Inflation was low for years until 2021, and the pandemic lockdowns and subsequent reopening have a lot to do with the current price hike.

Consumer demand surged just as factory closures and the reorganization of spending on services for goods caused manufacturing bottlenecks and overwhelmed ports. That’s why politicians were free to sneer at inflation for a while: it came from difficulties that seemed inclined to resolve themselves.

But price increases increasingly come from sectors with less clear and obviously temporary pandemic difficulties. Rents, which form a large part of inflation, are rising solidly.

“Housing is the main increase,” said Laura Rosner, economist at MacroPolicy Perspectives.
The potential for broader and longer-lasting price pressures has put Fed officials on their toes. Policymakers, who have been slowly failing to support the economy, have clearly announced last week that they are preparing to accelerate the pullback.

“They know the report is coming out,” Rosner said of the expected number for Friday. “He will confirm and explain why we’ve had such a dramatic shift.”

Nodes in the supply chain persist

Disruptions in the global flow of goods are not disappearing as quickly as officials had hoped. Additional waves of viruses prevented factories from running at full speed in Asia and elsewhere. Shipping routes are congested, and consumers continue to buy products at a robust pace, increasing delays and making it difficult to normalize the situation.

Families have about $2.5 trillion (R$14.3 trillion) in surplus savings, thanks in part to pandemic-era stimulus, which could help them keep buying new exercise equipment and coffee tables in the next year.

“The soonest we expect things to normalize is actually the end of 2022,” said Phil Levy, chief economist at the logistics firm FlexPort. As for not understanding inflation, he said, “Part of the problem is that we treat the supply chain as if it’s a special category, like food and energy.”

As 2021 made very clear, however, the global economy is a delicately balanced system. Look at the car industry: The closure of semiconductor plants because of the virus in Taiwan has delayed production of new vehicles. Faced with the shortage, car rental companies had to compete with consumers for second-hand vehicles, leaving dealer yards empty. The chain reaction drove prices up at every link along the way.

Wages are also rising

Another thing that could keep inflation high is that wages are skyrocketing. Some companies have started talking about passing this cost increase to customers, who seem willing and able to pay more. The Employment Cost Index, as the Fed closely assesses, rose markedly in the three-month period ending in September.

The risk is that this is an early and still imprecise echo of the kind of wage and price dynamics that helped fuel inflation in the 1970s and 1980s. price increases. Inflation and wage gains pushed each other into an upward spiral, to the point where price increases got out of control and required a Fed response.

In the years since then, workers have generally had less formal bargaining power. But employers face labor shortages as the virus keeps many would-be workers away and demand grows. This is giving workers the ability to demand higher pay as they face higher costs, and is prompting many employers to raise wages to compete for scarce talent. This could keep demand solid by increasing people’s resources to spend.

“Looking ahead, companies across all major industries are predicting continued and general wage increases,” reported the New York Fed in its section of the Fed’s Beige Book, a survey of business and employment contacts conducted by regional Fed banks.

Translated by Luiz Roberto M. Gonçalves