September 21, 2021

The Fed’s Favorite Price Index Rose 4 Percent. What Comes Next?

Michael Patrick, a chef and restaurateur in Memphis, has had to raise pay for cooks and dishwashers to entice them to return to his upscale Southern food restaurant, Rizzo’s by Michael Patrick. His food costs have risen, too, because supply-chain issues have made it hard to get chicken and other key ingredients. So he has responded by raising menu prices twice in recent months. So far, his customers aren’t complaining.

“People aren’t even blinking,” he said. “Not one person has said to me, ‘I can’t believe you raised your price on meatloaf two dollars.’”

But Mr. Patrick is concerned about the effects of the Delta variant. Both he and his customers have learned to navigate pandemic life, he said, so he is confident he will be able to maintain sales. But if the resurgence of the virus leads to more shutdowns at meat-processing plants and other food producers, that could pose a bigger challenge.

“Canola oil, beef, chicken — it’s all going up because the supplies just weren’t there,” he said. “Hopefully, at the end of the day, these variants don’t cause a lot of these companies to close their doors again.”

It will matter for workers how quickly today’s robust price gains fade. Higher prices are taking a bite out of workers’ paychecks. Income after taxes fell 0.5 percent June, accounting for the impact of inflation. Over the past year, inflation has more than offset a modest rise in after-tax income.

The data released Friday showed that core inflation, which strips out volatile food and fuel prices and can give a cleaner reading on price trends, picked up by 3.5 percent in June from a year earlier, for the highest annual reading in 30 years.

The headline index climbed 0.5 percent from May to June, slightly less than the 0.6 percent that economists in a Bloomberg survey had expected.

Article source: https://www.nytimes.com/2021/07/30/business/economy/pce-inflation-federal-reserve.html

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