Inflation in America rose at an annual rate of 4.2% in April, the fastest since September 2008. Will this increase be as enduring as it was 50 years ago?
. As swathes of America’s economy have begun rapidly reopening for business in recent weeks, thanks to falling rates of covid-19 infections and rising ones of vaccination, William Berkley has been paying close attention to prices of building materials and anything found inside homes, from lamps to laptops. The replacement value of a home in America may have leapt by 20%, year on year, Mr Berkley thinks.
In the 1970s companies responded to rising input prices in a number of ways. First, they passed as much of the higher costs as possible on to customers. When that strategy was exhausted, they turned to automating operations or moving them to places with cheaper labour, either elsewhere in America or abroad.
Pent-up consumer demand allows companies to get away with even large price rises. Returns, which held up in the first quarter, are expected to do so again in the second. Margins actually rose in that period at large American firms, according to Credit Suisse, a bank. This suggests that as yet, far from forcing companies to absorb the extra costs, inflation may have given them some extra pricing power.
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