The current price increases almost certainly won’t last, economists widely agree.
Surging U.S. inflation tied to reopening of the economy is supposed to start to fade by the end of the year, but rising wages threaten to upset the conventional wisdom.
Inflation likely rose sharply again in May. Economists polled by Dow Jones and The Wall Street Journal predict the consumer price index rose 0.5% last month. The report comes out on Thursday.If so, that would push the yearly rate close to 5% from 4.2% in April. Put another way, consumers want to buy a lot of things and spend money on services such as travel or entertainment they avoided during the pandemic. But companies still recovering from a collapse in demand during the pandemic can’t produce enough yet to satisfy them.It’s not going to last. Sooner or later, companies will catch up and satisfy all the pentup demand. Major shortages of key supplies such as computer chips will go away. And prices of raw materials will come back down.
Higher wages alone are not a cause of inflation, it should be kept in mind. If workers are productive enough, companies can increase pay without any harm to their bottom line or a general increase in inflation.Yet it’s far from clear that workers being hired now will turn out to be more productive.
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