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Should We Fear Post-Pandemic Inflation?

May 28, 2020 by Leave a Comment

Consider the path of oil prices in the years ahead that is implied by the futures market. On Wednesday, a barrel of West Texas Intermediate crude oil for delivery in July cost $32.22. The price for delivery next July is around $37 — implying a 15 percent surge in the price of oil over the coming year, which would tend to push overall consumer prices upward.

But that still suggests a depressed oil market — a level at which there are widespread bankruptcies among drillers and a price well below its level at the beginning of the year ($61). Even the most distant available futures contract, for February 2031, last traded at $56.65, implying expectations that a decade from now oil prices will still be below their pre-pandemic level.

You could apply the same logic not only to other commodities, but also to service industries that are heavily affected by the pandemic. Hotels, for example, are currently running far below capacity, with only 32 percent occupancy in the week ended May 16, according to the research firm STR. That has led them to slash prices, with average daily rates down 42 percent from a year earlier.

As public health concerns start to recede, it is plausible that hotels will start filling up and raising their prices in ways that create an apparent surge of inflation even while occupancy remains far below long-term norms. In other words, inflation would be not so much a reflection of an economy that had overheated as an artifact of the strange spring of 2020.

It is easy to see the outlines of a predicament for the Fed in the next few years. There could easily be inflation rates that are well above its 2 percent target while prices over all are still below pre-pandemic levels. That would suggest that all the problems deflation can create — in particular, making debts more onerous — would still be very much alive, even as the economic headlines pointed to spiking prices.

  • Frequently Asked Questions and Advice

    Updated June 1, 2020

    • How do we start exercising again without hurting ourselves after months of lockdown?

      Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.

    • My state is reopening. Is it safe to go out?

      States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.

    • What’s the risk of catching coronavirus from a surface?

      Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.

    • What are the symptoms of coronavirus?

      Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.

    • How can I protect myself while flying?

      If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

    • How many people have lost their jobs due to coronavirus in the U.S.?

      More than 40 million people — the equivalent of 1 in 4 U.S. workers — have filed for unemployment benefits since the pandemic took hold. One in five who were working in February reported losing a job or being furloughed in March or the beginning of April, data from a Federal Reserve survey released on May 14 showed, and that pain was highly concentrated among low earners. Fully 39 percent of former workers living in a household earning $40,000 or less lost work, compared with 13 percent in those making more than $100,000, a Fed official said.

    • Should I wear a mask?

      The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.

    • What should I do if I feel sick?

      If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.

    • How can I help?

      Charity Navigator, which evaluates charities using a numbers-based system, has a running list of nonprofits working in communities affected by the outbreak. You can give blood through the American Red Cross, and World Central Kitchen has stepped in to distribute meals in major cities.

It certainly could be a political problem for the Fed, and cause pain for American workers, if prices for consumer goods rise while wages are stagnant or falling. But it would fundamentally reflect an economy that was starting to heal, not one that had overheated or in which policymakers had flooded the system with too much money.

And that speaks to an irony in the inflation hand-wringing that has emerged in the last few weeks. In many ways, an inflation surge in the early 2020s would be a signal that all the efforts being taken now (to flood the financial system with cash, to prop up smaller businesses and aid unemployed people) had worked — preventing a deflationary spiral akin to what happened in the Great Depression.

Article source: https://www.nytimes.com/2020/05/28/upshot/should-we-fear-inflation.html

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