Inflation is looming. Here’s where you can expect to see prices go up in Charlotte.
If you’ve noticed your bank account tightening this year, there might be more than a post-lockdown spending spree to blame.
Inflation in the U.S. has accelerated in 2021 and hasn’t cooled yet: in July, the Consumer Price Index, a key indicator of inflation, rose 5.4% from the same time last year, according to the Bureau of Labor Statistics. It’s the largest 12-month percent change in over a decade.
For consumers, it means an uptick in prices on a variety of goods, from fridges to flight tickets.
The Observer spoke with local economists to get a sense of where prices will jump the most in the Charlotte region and how long the increases will last. Here’s what they said.
Why is inflation heating up?
The consumer price index, an inflation indicator that tracks year-to-year change in the price of a basket of goods and services, rose sharply through the first half of 2021.
That doesn’t come as a surprise to many economists. They expected inflation to increase as demand rebounded and the U.S. economy recovered from the shock of the initial COVID-19 outbreak last spring, said Laura Ullrich, a regional economist at the Charlotte branch of the Federal Reserve Bank of Richmond.
“Right now the numbers we’re seeing are higher, but in line with expectations,” she said.
But rising inflation can still put pressure on consumers’ pocketbooks, said John Connaughton, an economist and professor at UNC Charlotte, especially because income levels often lag behind price increases.
Inflation is typically driven by one of two factors, he said: supply and demand. Either demand is too high for a limited number of goods or the cost of producing goods rises and suppliers pass those costs on to consumers.
“Unfortunately, today we have both of those in concert,” Connaughton said.
Consumers have more money to spend, thanks to increased savings rates during the pandemic and government benefits like stimulus payments and the child tax credit. At the same time, he said, suppliers are reckoning with material and labor shortages.
That all adds up to inflation levels that he finds troubling. “We haven’t seen anything like this since the 1970s.”
Where can I expect big price increases?
For some categories of goods, the jump in prices has already been significant, Connaughton said.
“The poster child has been automobiles,” he said. The prices of new and used cars have soared in recent months, Connaughton said, due to high demand and limited inventory resulting from a global semiconductor shortage.
He also expects prices increase for gas and manufactured goods, he said. Items like consumer appliances and electronics may also be affected.
Additionally, consumers can expect to pay more for plane tickets, hotel rooms or other travel and entertainment charges, Ullrich said, as prices in these sectors continue rebounding to pre-pandemic levels.
As for the size of the hit to your wallet: “It depends on your typical basket of goods,” she said.
Something as seemingly unrelated as your diet could make a difference. People may notice a higher grocery or restaurant bill, Ullrich noted, thanks to rising prices for beef and pork. Those who skip the meat aisle may notice fewer changes.
Who will be most affected?
One of the most concerning aspects of rising inflation is that the trend disproportionately affects low-income households, Connaughton said.
For example, a $1 increase in the price of a gallon of gas probably won’t make much of a difference for most drivers, he said. But for a Charlottean living on a $30,000 to 40,000 annual salary, the impact is more significant.
“That means they give up something in order to get to and from work,” he said.
Those living on fixed incomes, such as retirees, could also feel a larger impact, Connaughton said, since they’re unable to compensate for the change.
When will prices stop rising?
Though it’s hard to say precisely when inflation levels will cool, Ullrich expects the increase in prices to be temporary. The Fed is closely monitoring inflation, she said, and has a variety of tools to address it — including raising interest rates — if inflation starts to rise too quickly
In the meantime, Ullrich said budget-conscious consumers can try to wait out a temporary price increase on some elective purchases.
“There’s going to be needs or emergency purchases,” she said. “If your refrigerator breaks down, you need to buy a new refrigerator. But would I buy a new refrigerator right now because I don’t like the color? Maybe not.”
Connaughton expects supply chain struggles to create a longer-lasting impact, hindering inventory levels and keeping prices high for several months.
He said he wouldn’t be surprised if retailers had a hard time building inventory for this year’s holiday season — and if that’s the case, shoppers can expect fewer sales come Christmastime.
“Black Friday ain’t going to be what it used to be,” he said.
