Apr 18, 2022 - Economy

High prices are here to stay

Illustration of the U.S. flag with one stripe moving upward like a chart trend line

Illustration: Sarah Grillo/Axios

Inflation is pushing prices higher and higher, and some of those costs may never come back down to the levels Americans were accustomed to before the pandemic.

The big picture: The inflationary moment we're in right now won't last forever. But the good old days of cheap goods, and even cheaper services, may be long gone.

Where it stands: Before COVID, overall inflation ran comfortably at or near the Federal Reserve’s target of 2% annualized, thanks in part to technology, productivity and cheap labor.

  • But the low-inflation status quo has been disrupted — perhaps irrevocably — by supply bottlenecks, worker shortages and spiking prices that Corporate America is happily passing along to consumers.
  • Gas, food and other consumer prices have soared, with no end in sight.

What's next: The energy surge won’t last forever, and some added costs — like Amazon’s newly unveiled “surcharge” for online sellers — can be rolled back once the current crisis abates.

  • However, other prices can be notoriously ‘sticky" — which suggests economic activity is setting a new base at higher price levels.

People are getting socked by surging costs everywhere, and the sticker shock is likely to persist for quite some time, Axios Closer’s Hope King and Nathan Bomey wrote recently.

What they’re saying: “The market generally sees inflation falling in the coming years, moving towards the Fed’s target,” Thomas Verbraken, MSCI Research’s executive director, told Axios in an email.

  • “But as per market expectations, a return to pre-COVID price levels seems unlikely — at least for most items in the consumer’s basket,” he added – even though Fed data suggests markets and consumers “expect the inflation rate to subside to lower levels over the next several years.”

Yes, but: While some fear the Fed will have to force a recession to calm things down, a soft landing is possible.

  • “A growing labor force could help economic growth and reduce wage inflation and thereby contribute to a lower rate of inflation,” Verbraken said. “There does not necessarily need to be a drop in demand for inflation to come down.”

Editor's note: This story has been updated to correct the spelling of Thomas Verbraken.

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