A period of high inflation in the United States may last longer than anticipated, two U.S. Federal Reserve officials admitted on Wednesday, just a day after Fed Chair Jerome Powell continued to play down soaring prices.
The admissions follow data showing inflation hit 5 percent in May, the highest annual rate since 2008, putting pressure on the Fed to raise interest rates and stop flooding the economy with money through bond purchases.
From the cereal maker General Mills to Chipotle Mexican Grill and paint maker Sherwin-Williams, a range of companies have been jacking up prices, in some cases to make up for higher wages that they’re now paying to keep or attract workers.
Atlanta Fed President Raphael Bostic said with growth surging to an estimated 7 percent this year and inflation well above the Fed’s 2 percent target, he now expects near-zero interest rates will need to rise in late 2022.
Fed Chair Jerome Powell continued to play down soaring prices, but other officials say that the inflation trend could persist
‘Given the upside surprise in recent data points I pulled forward my projection,’ Bostic said, placing him among seven Fed policymakers who at the central bank’s meeting last week projected the overnight policy rate may need to lift from the current near zero level sometime next year.
That marked a decisive shift from the end of 2020, when 12 Fed policymakers felt that crisis levels of interest rates would need to remain in place into 2024.
Both Bostic and Fed Governor Michelle Bowman on Wednesday said that while they largely agree recent price increases will prove temporary, they also feel it may take longer than anticipated for them to fade.
‘Temporary is going to be a little longer than we expected initially … Rather than it being two to three months it may be six to nine months,’ Bostic said in an interview on National Public Radio’s ‘Morning Edition.’
Prices for goods like lumber and used cars have pushed some measures of inflation to multi-year highs, with the consumer price index showing a 5 percent annualized increase in May, the fastest since 2008.
Atlanta Fed President Raphael Bostic and Fed Governor Michelle Bowman on Wednesday said that it may take longer than anticipated for high inflation to fade
Republican Rep. Steve Scalise grills Powell on inflation at a hearing earlier this week
‘The inflation pressure we’re seeing is significant,’ General Mills CEO Jeff Harmening said at a recent investor conference. ‘It’s probably higher than we’ve seen in the last decade.’
The company, which makes such cereals as Honey Nut Cheerios, Lucky Charms, and Trix, has said it’s considering raising prices on its products because grain, sugar and other ingredients have become costlier.
Hormel Foods has already increased prices for Skippy peanut butter. Coca-Cola has said it expects to raise prices to offset higher costs.
Kimberly-Clark, which makes Kleenex and Scott toilet paper, said it will be raising prices on about 60 percent of its products. Proctor & Gamble has said it will raise prices for its baby, feminine and adult care products.
Chipotle Mexican Grill announced this month it was boosting menu prices by roughly 4 percent to cover the cost of raising its workers´ wages to an average of $15 an hour.
Though some prices have begun to ease already, the higher prices have registered among elected officials, and forced the Fed to begin thinking about how to ensure prices do not spiral too high or too fast.
Bowman in remarks to a Cleveland Federal Reserve bank conference said she agrees prices are being driven by clogged supply chains and surging demand as the economy reopens, factors that should ease.
But she put no time frame around when that might happen, saying that ‘it could take some time,’ and would need to be closely watched as the Fed sets policy.
Powell and other policymakers have staked their current outlook on a presumption that the surge in prices seen as the economy reopened would ease on its own, allowing the Fed to hit its 2 percent inflation target on average over time.
Shown are meat products at a grocery store in Roslyn, Pennsylvania earlier this month. Consumers are facing higher prices and fear that inflation will continue to rise
Gas prices are displayed at a Chevron station on June 14 in Los Angeles. Gas prices are up 56% from a year ago in another worrying signal for consumers
Powell told a U.S. congressional committee on Tuesday that recent high inflation readings resulted from a ‘perfect storm’ of circumstances related to the reopening, and would abate.
How quickly that happens, however, may influence the Fed’s upcoming decisions about when to begin reducing its $120 billion in monthly bond purchases, and eventually raise interest rates.
Boston Fed President Eric Rosengren said on Wednesday that he expects inflation to come down and be slightly above 2% going into next year.
Bostic said that ‘three or four months’ of continued job gains should yield enough progress in the recovery of employment to consider pulling back on the bond purchases, a precursor in his view to raising rates.