Now that the US service sector is back to running normally in many segments, prices are also on the rebound. Air travel and hotel bookings are picking up and their costs are also comparatively higher than the rock-bottom levels seen last year in the wake of the containment measures. And all the while, a shortage of semiconductors is indirectly having an impact on consumer prices. The reason: If new cars are unavailable due to the dearth of semiconductors, people opt to buy second-hand cars. Prices for preowned vehicles have increased massively.
Even if all these ostensibly inflationary factors persist for a while to come, they are merely special effects of the pandemic. It will take some time for this “price dust” to settle, but by the beginning of 2022 at the latest, these transitory effects will be a thing of the past. At which point, inflation rates will recede again – the key is in the comparables. And this is precisely why the financial markets are viewing the current inflation readings somewhat relaxed. Market-based inflation expectations have recently fallen noticeably, as also evidenced by the drop in 10-year Treasury yields. The latter stood a tad above 1.70% at the end of March; in the meantime, they have retreated to just below 1.50%.
Unusual phenomenon in the labour market
But the coronavirus pandemic is spawning many an unexpected phenomenon, one of which could influence the course of inflation; namely, the labour market. Oddly, Americans are not returning to their jobs at present, even though there is high demand for workers. Now that the economy is largely back to business as usual, workers are being desperately sought: almost half of the small businesses surveyed in May by the National Federation of Independent Business (NFIB) reported unfilled job openings – more than double the 48-year average.