New York / London (CNN Business)Americans have witnessed some wild price hikes over the past few months. Shortages and supply chain issues across the world have sent the cost to make and move goods soaring and left consumers paying up.
Since then, prices for some pandemic favorites — such as lumber — have leveled off. But even as the economy returns to something closer to normal, inflation remains unrelentingly high.
It's a dramatic change from the pre-pandemic state of affairs and another example of how the coronavirus crisis is reshaping the economy and everyday life.
See here: Used car prices soared in part because lockdowns led many city-dwellers to buy cars, and because new car production was hampered by shuttered plants and chip shortages. In the year ended in May, used car prices were up nearly 30%, according to the Bureau of Labor Statistics.
Before the pandemic, inflation — which the Federal Reserve would like to have around 2% — had been stuck near rock bottom for years. Now, the Fed finds itself striking an increasingly difficult balance between supporting the recovery through ample stimulus while keeping inflation in check.
As the recovery gathers steam, the items that are driving inflation up are changing. For example, people are spending more money dining out as pandemic restrictions are lifted, while the return to offices is prompting a work wardrobe refresh.
Data point: In the 12-month period ended in May, the price index for food eaten outside the home was up 4%, fueled by increases in restaurant spending in late spring as Covid restrictions were scaled back. Similarly, apparel prices rose 5.6% in the year ended in May.
Eventually, these pandemic-era price hikes should normalize. Last month, Federal Reserve Chairman Jerome Powell, fielding questions about rampant inflation at a press conference, said there is no reason to assume prices will remain this high for an extended period. But quite how long they stick around remains uncertain.
Powell isn't alone in expecting inflation to fall. The bond market is pricing post-pandemic inflation to be as stubbornly low as it was before, head of income investing for the BlackRock Multi-Asset Strategies Group, Michael Fredericks said last week on CNN Business' digital live show Markets Now.
Last week, the 10-year Treasury bond yield dropped to its lowest level since February, indicating that investors likely see current price spikes as transitory, or are at least waiting to see how inflation will develop over the summer.