There’s lots of talk about the 1970s right now, but it’s not nostalgia for disco music and the leisure suit. There’s rising concern that inflation is starting to take hold in the economy.
Prices are up across most U.S. sectors right now. According to the Bureau of Labor Statistics, the cost of everything is up 5% over the past 12 months. Energy has jumped a whopping 28.5% in the past year, while food is up a little more than 2%.
The cost of everything else has also risen nearly 4%. In the West, prices have jumped 4.7% in the past year. There were big bumps for gasoline, up 3.9%, and for new and used cars, which rose 3.7%.
That 5% inflationary rate is the largest in more than a decade, which is prompting fears that the U.S. might be headed for a repeat of what happened in the 1970s, when inflation skyrocketed from 6.2% in 1973 to 11% the next year and all the way up to 13.5% by 1980.
While that scenario remains a possibility, it’s not the most likely outcome. So, what is going on?
There are a lot of different components at work. The first is the economy is coming out of last year’s pandemic-induced recession. That means there’s more demand for goods and services, which is driving up costs.
“People are going back to work and going on vacation and going out to restaurants,” said Zions Bank senior economist Robert Spendlove.
Utah’s economy weathered the pandemic much better than other states, emerging with low unemployment and net-positive job gain. The state’s budget saw revenue surpluses at the end of the 2021 legislative session and the economy is projected to grow by more than 6% this year.
Ups and downs of lumber
Still, the pandemic disrupted a huge part of the U.S. economy, and it’s just beginning to shake off those effects. Supply chains were stopped or slowed as consumer demand fell. A perfect example is the price of lumber. When the pandemic started, demand for lumber fell off a cliff, and many sawmills shut down or slashed back production. Demand surged due to a boom in construction and home renovations. Prices rose as much a 300%. Now, supply is starting to meet demand, causing prices to drop significantly.
The price of used cars has shot up in recent months. Some used vehicles are now selling for more than their original list price, which can be attributed to the pandemic’s impact on microchip manufacturing. New car manufacturers scaled back their production and canceled orders for microchips used in today’s modern cars. They’re having trouble ramping up again because they’re now at the back of the line for those orders. The Bureau of Labor Statistics says prices for new and used vehicles are up 14.3% over the past year in the West.
“That one shortage of microchips is causing distortions in several very different areas,” said Spendlove, who also serves as a Republican legislator in the Utah House from Sandy. “It affected the ability to build new cars. That increased the price of used cars and the price of rental cars. It just kind of flows through the whole economy.”
The rental car crunch may become more acute in Utah. The new Salt Lake City International Airport shut down the car-sharing service Avail in May, which will further reduce the available rental inventory just as post-pandemic travel is taking off.
As pandemic restrictions ease, the demand for oil across the globe is rising. That’s one reason gasoline prices are up. Couple that with the usual increase in consumption that accompanies the summer driving season, and the pain at the pump won’t subside anytime soon. The average per-gallon price in Utah is $3.47. That’s $1.20 more than it was a year ago.
Wages are rising, too
Economist Phil Dean, a research fellow at the Kem C. Gardner Policy Institute, sees a lot of uncertainty in the post-pandemic economy.
“The big question is how many of these are going to be ongoing issues and how many are temporary that will work through the system in a matter of months,” Dean…