Still, economists warned not to dismiss inventory and trade effects entirely. Both reflect the challenges that domestic producers are having meeting sky-high consumer demand.
“If we are importing things rather than making them here, that reflects that we are demanding more than we can produce,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution. “It suggests that our economy just does not have the capacity to meet demand.”
Inflation F.A.Q.
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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
The Federal Reserve is trying to tamp down demand by raising interest rates, which policymakers hope will tame inflation. But Russia’s invasion of Ukraine and a new round of Covid lockdowns in China have complicated its job by prolonging supply disruptions, which the central bank can do little about.
Matt Younger, who owns a small construction firm in Annapolis, Md., is dealing with long delays and higher prices for just about everything that goes into building a house: two-by-fours, plywood, windows, garage doors.
“It’s like playing a game of chess — I’ve got to be a couple moves ahead on everything in case I can’t get something,” he said.
Now, rising interest rates are threatening to cool off the red-hot real estate market. Mortgage applications have fallen sharply, sales of new and existing homes have also dipped, and anecdotal evidence from across the country suggests that the madcap bidding wars that characterized the residential real estate market for much of the past two years may be starting to fade.
So far, however, none of that has led to a slowdown in the construction business. Residential construction grew 0.5 percent in the first quarter, only slightly slower than in the final quarter of 2021, and applications for building permits rose in March. Mr. Younger’s business is still booming.
Article source: https://www.nytimes.com/2022/04/28/business/economy/us-gdp-q1-2022.html
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