WASHINGTON, April 13 — Pent-up consumer demand unleashed as the economy reopens, as well as supply constraints due to the pandemic, will push US prices higher in coming months, but only temporarily, White House economists said yesterday.

“The Covid-19 pandemic has caused an unconventional recession, and we do not expect the recovery will be typical either,” Jared Bernstein and Ernie Tedeschi said in a blog post explaining the factors driving inflation.

The officials from President Joe Biden’s Council of Economic Advisers said that “in the next several months we expect measured inflation to increase somewhat, primarily due to... temporary factors” including pent-up demand and supply constraints.

But they agree with Federal Reserve chair Jerome Powell that those issues will “likely be transitory, and that their impact should fade over time as the economy recovers from the pandemic.”

Advertisement

The effort to explain and ease concerns about expected price spikes comes a day before the government releases the closely-watched Consumer Price Index (CPI) for March, which marked a full year of Covid-19 impact.

The March Producer Price Index (PPI) was released last week and revealed a 1.0 per cent jump in the month and a 4.2 per cent surge for the past 12 months, the highest since September 2011.

The consensus forecast is for CPI to rise 0.5 per cent in the latest month.

Advertisement

Economists caution that the pandemic business closures, job losses and stimulus payments from the government all are having an unprecedented impact on the economy that will filter through the price data.

The dramatic price drops registered in the early parts of the pandemic as the economy shut down mean the return to normal will show a sharp spike in comparison, a phenomenon known as “base effects.”

Bernstein and Tedeschi also pointed to delays in shipping and rising costs of materials and transportation — including the recent accident where a ship blocked the Suez Canal for days — as one short-term impact on US prices.

In addition, as the economy reopens, it will unleash a rapid wave of demand, especially for services such as air travel, hotels and dine-in restaurants, which could outstrip supply and fuel increases as well.

But while it is important to monitor inflation pressures, “it is equally important to recognize that economic ‘heat’ does not necessarily equate with overheating,” the economists said.

Powell has repeatedly reassured Americans that price spikes will be temporary, which means they will require the central bank to raise borrowing rates off zero for some time.

But even if prices show signs holding well above the Fed’s two per cent target for too long, policymakers have the tools to keep inflation under control. — AFP