Evelyn Reynolds

A discussion over whether price controls would work to stem inflation is sweeping progressives. So far, it has little political acceptance.America’s recent inflation spike has prompted renewed interest in an idea that many economists and policy experts thought they had long ago left behind for good: price controls.The federal government last imposed broad-based limits on how much private companies could charge for their goods and services in the 1970s, when President Richard M. Nixon ushered in wage and price freezes over the course of a few years. That experiment was widely regarded as a failure, and ever since, the phrase “price controls” has, at least for many people, called to mind images of product shortages and bureaucratic overreach. In recent decades, few economists have bothered to study the idea at all.As consumer prices soared this fall, however, a handful of mostly left-leaning economists reignited the long-dormant debate, arguing in opinion columns, policy briefs and social-media posts that the idea deserves a second look. Few if any are arguing for a return to the Nixon-era policies. Many say they aren’t yet ready to endorse price controls, and just want the idea to be taken seriously.Even so, the renewed discussion brought a swift reaction from many mainstream economists on both the right and left, some of whom suggested it would be a mistake to even open the door to the idea. So far, decision makers in Washington haven’t embraced price caps, even in a more modest form.Here’s what to know about the push for price controls, the history of the idea and the possible outcomes if they were to be tried in 2022.Why do (most) economists dislike price controls?In the most basic economic models, prices are a function of supply and demand. If prices for a product are too high, people won’t buy as much of it. If prices are too low, companies won’t make as much money, and will make less of the product. In a free market, prices naturally settle at the point that balances out those two forces.In that model, when the government imposes an artificial cap on prices, supply falls (since companies won’t make as much money) and demand rises (since more people will want to buy at the government-imposed lower price). As a result, supply can’t meet demand, resulting in shortages.That’s the theory. In the real world, a variety of factors — imperfect competition between producers, unpredictable behavior by consumers, practical limits on how quickly operations can ramp up and down — mean that prices don’t always behave the way simple models predict.Still, most economists argue that the basic logic of that theory still holds: Artificially holding down prices leads to shortages, inefficiencies or other unintended consequences, like an increase in black-market activity. And while some economists say price controls on specific products can make sense in specific situations — to prevent price-gouging after a natural disaster, for example — most argue that they are a poor tool for fighting inflation, which is a broad increase in prices.In a recent survey of 41 academic economists conducted by the University of Chicago’s Booth School of Business, 61 percent said that price controls similar to those imposed in the 1970s would fail to “successfully reduce U.S. inflation over the next 12 months.” Others said the policy might bring down inflation in the short-term but would lead to shortages or other problems.“Price controls can of course control prices — but they’re a terrible idea!” David Autor, an economist at the Massachusetts Institute of Technology, wrote in response to the survey.Have price controls worked in the past?In August 1971, with consumer prices rising at their fastest pace since the Korean War, Mr. Nixon announced that he was imposing a 90-day freeze on most wages, prices and rents. Once the freeze ended, companies were allowed to raise prices, but subject to limits set by a council headed by Donald H. Rumsfeld, who later served as defense secretary for Presidents Gerald R. Ford and George W. Bush.The controls initially looked like a success. Inflation fell from a peak of more than 6 percent in 1970 to below 3 percent in the middle of 1972. But almost as soon as the government began to ease the restrictions, prices shot back up, leading Mr. Nixon to impose another price freeze, followed by another round of even more stringent controls. This time, the controls failed to tame inflation, in part because of the first Arab oil embargo. The price controls expired in 1974, shortly before Mr. Nixon resigned from office.Not all attempts at reining in prices have been such clear failures. During World War II, the Roosevelt administration imposed strict price controls to prevent wartime shortages from making food and other basic supplies unaffordable. Those rules were generally viewed as necessary at the time, and economists have tended to view them more favorably. In fact, there have been plenty of instances of wartime price controls throughout history, often paired with rationing and wage growth limits.Why do some economists want to reopen the debate?Few economists today defend the Nixon price controls. But some argue that it is unfair to consider their failure a definitive rebuttal of all price caps. The 1970s were a period of significant economic turmoil, including the Arab oil embargo and the end of the gold standard — hardly the setting for a controlled experiment. And the Nixon-era price caps were broad, whereas modern proponents suggest a more tailored approached.Many progressive economists in recent years have reconsidered once-scorned ideas like the minimum wage in response to evidence suggesting that real-world markets often don’t behave the way simple economic models would predict. Price controls, some economists argue, are due for a similar reappraisal.“This is a great suppressed topic,” said James K. Galbraith, an economist at the University of Texas. “It was absolutely mainstream from the start of World War II until the Reagan administration.”Isabella Weber, an economist at the University of Massachusetts Amherst, has pointed to the period after World War II, when the government quickly lifted wartime price controls and inflation spiked. In a recent opinion column in the Guardian newspaper, Dr. Weber argued that had the controls been removed more slowly, as many prominent economists suggested at the time, inflation might have been lower. The huge, unexpected wartime disruption, she said, might offer parallels for today.But other experts said there were key differences between the two periods. Wartime price caps typically came alongside rationing, in which the quantity of goods people were allowed to buy was limited, said Rebecca L. Spang, a money historian at Indiana University.“If you try to have price controls without rationing, you end up with shortages, you end up with purveyors pulling their goods from the market,” she said.Enforcing price controls is also difficult: It requires popular acceptance, agency personnel and wide governmental support. Broad buy-in of shared ideas is not a feature of the modern political landscape.“The cultural context has changed so much,” she said, noting that the world since World War II has begun to treat economics as an individual pursuit, emphasizing freedom and low regulation.What would price controls look like in 2022?Shoppers at a grocery store in Queens, N.Y., last year. As consumer prices soared this past fall, a handful of mostly left-leaning economists argued that price controls deserved a second look.Janice Chung for The New York TimesSo far, few people have offered specific proposals for price controls in response to the recent jump in inflation. But economists who are exploring the idea are focused on areas where the pandemic has disrupted supply chains.Those disruptions, this argument goes, may take time to resolve. In the meantime, if needed products — meat, computer chips, gas — come up short, it is not clear that market forces will be able to rapidly expand production to meet demand. That could lead to a situation where companies can make big profits by charging more for goods in short supply, and in which only the rich can afford some products.Inflation F.A.Q.Card 1 of 6What is inflation? More

The producer price index, a measure of wholesale prices for goods and services, increased 0.2% in December, below the 0.4% estimate.
For all of 2021, the 9.7% gain was the biggest on record in data going back to 2010.
Weekly jobless claims totaled 230,000, well above the estimate, though the four-week average of filings hit its lowest since 1973.

Wholesale prices rose less than expected in December but still set a new standard at a time when consumer inflation is running at a nearly 40-year high, the Labor Department said Thursday.
The producer price index, which measures prices received by producers of goods, services and construction, was up 0.2% for the month, half the 0.4% Dow Jones estimate.

However, on a 12-month basis, the index was up 9.7% to end 2021, the highest calendar-year increase ever in data going back to 2010.
The monthly gain was a sharp drop-off from the two previous months, which showed gains of 1% in November and 0.6% in October.
A separate report Thursday showed that initial jobless claims for the week ended Jan. 8 totaled 230,000, well above the 200,000 estimate and a considerable increase from the previous week’s 207,000.

However, the longer-term trajectory for unemployment was lower.
Continuing claims, which run a week behind the headline number, fell by 194,000 to 1.56 million, the lowest level since June 2, 1973.

With the jobless level continuing to fall — the unemployment rate for December slid to 3.9% — markets have been more focused on inflation. Thursday’s PPI reading came the day after the consumer price index, which measures prices paid at checkout for a swath of everyday goods and services, rose 7% year over year, the biggest 12-month gain since June 1982.
Excluding food, energy and trade, so-called core PPI increased 0.4% for the month, below the 0.5% estimate.
Final demand prices for food and energy both fell during the month, declining 0.6% and 3.3%, respectively. Trade prices rose 0.8% while transportation and warehousing costs were up 1.7%.
Goods prices actually declined 0.4% on the month but that was offset by a 0.5% rise in services. The Covid pandemic era has featured much stronger demand for goods, helping contribute to the surge in consumer inflation.
Federal Reserve officials are watching inflation data closely, and are expected to tighten policy later this year in response to rising prices and a jobs market getting closer to full employment.
“After nearly two years of accommodation, I think we can expect a fair amount of tightening in 2022,” Philadelphia Fed President Patrick Harker said in remarks Thursday morning.
On the unemployment front, claims rose amid some seasonal noise left over from the holidays. Unadjusted claims totaled 419,446 for the week at a time when seasonal indicators already had pointed to a large increase.
Smoothing out for weekly volatility, the four-week average for claims was 210,750, an increase of 6,250 from the previous week but still below the pre-pandemic level.
“The speed of the drop in claims in November was flattered by favorable seasonals, and the payback is evident in the recent numbers,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. “The seasonal issues will persist for another week or two, after which we expect claims to drop towards new cycle lows. The trend is heading south, just not as quickly as the data late last fall appeared to suggest.”
The largely downward trend in claims has come amid labor force participation that remains well below the February 2020 pre-Covid levels and as enhanced and extended benefits expired.
Despite the unemployment rate’s decline, the total employment level is about 2.9 million below where it was before the pandemic and the labor force level is smaller by nearly 2.3 million.

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The consumer price index, an inflation gauge that measures costs across dozens of items, rose 7% in December from a year earlier, the fastest pace since June 1982.
That was in line, however, with economist estimates, and stock market futures rose after the release.
Excluding food and energy, so-called core CPI was up 5.5% on the year, the biggest growth since February 1991.

Inflation plowed ahead at its fastest 12-month pace in nearly 40 years during December, according to a closely watched gauge the Labor Department released Wednesday.
The consumer price index, a metric that measures costs across dozens of items, increased 7%, according to the department’s Bureau of Labor Statistics. On a monthly basis, CPI rose 0.5%.

Economists surveyed by Dow Jones had been expecting the gauge to increase 7% on an annual basis and 0.4% from November.
The annual move was the fastest increase since June 1982 and comes amid a shortage of goods and workers and on the heels of unprecedented cash flowing through the U.S. economy from Congress and the Federal Reserve.

Despite the strong gain, stocks rose after the news while government bond yields were mostly negative.
“The December CPI report of a 7% increase over the last 12 months will be shocking for some investors as we haven’t seen a number that high” in almost 40 years, said Brian Price, head of investment management at Commonwealth Financial Network. “However, this print was largely anticipated by many, and we can see that reaction in the bond market as longer-term interest rates are declining so far this morning.”

Excluding food and energy prices, so-called core CPI increased 5.5% year over year and 0.6% from the previous month. That compared with estimates of 5.4% and 0.5%. For core inflation, it was the largest annual growth since February 1991.

Shelter costs, which make up nearly one-third of the total rose 0.4% for the month and 4.1% for the year. That was the fastest pace since February 2007.
Used vehicle prices, which have been a major component of the inflation increase during the Covid pandemic due to supply chain constraints that have limited new vehicle production, rose another 3.5% in December, bringing the increase from a year ago to 37.3%.
Conversely, energy prices mostly declined for the month, falling 0.4% as fuel oil was down 2.4% and gasoline fell 0.5%. Still, the complex as a whole rose 29.3% in the 12-month period, including a gain of 49.6% for gasoline.
Fed officials are watching the inflation data closely and are widely expected to raise interest rates this year in an effort combat increasing prices and as the jobs picture approaches full employment. Though the central bank uses the personal consumption expenditures price index as its primary inflation measure, policymakers take in a wide range of information in making decisions.
“This morning’s CPI read really only solidifies what we already know: Consumer wallets are feeling pricing pressures and in turn the Fed has signaled a more hawkish approach. But the question remains if the Fed will pick up the pace given inflation is seemingly here to stay, at least in the medium-term,” said Mike Loewengart, managing director for investment strategy at E-Trade. “With Covid cases continuing to rise, the impact on the supply chain and labor shortages could persist, which only fuels higher prices.”
Inflation has been eating into otherwise strong wage gains for workers. However, real average hourly earnings posted a small 0.1% increase for the month, as the 0.6% total gain outweighed the 0.5% CPI headline increase. On a year-over-year basis, real earnings declined 2.4%, according to BLS calculations.
Fed officials largely attribute rising inflation pressures to pandemic-specific issues in which a shortage of workers has led to clogged supply chains and empty store shelves. Though there are signs the omicron variant cases could peak soon, lingering Covid issues combined with cold weather in the Northeast point “to renewed upward pressure on food prices,” wrote Paul Ashworth, chief U.S. economist at Capital Economics.
Food prices broadly rose 0.5% for December and were up 6.3% on a 12-month basis, the biggest rise since October 2008.
Investors largely expect the Fed to start raising rates in March. Fed Chairman Jerome Powell, at his confirmation hearing Tuesday before the Senate banking panel, did not provide any specific dates but acknowledged that as long as current conditions persist, rate hikes are on the way.
Markets are pricing a nearly 79% chance for the first quarter-percentage point increase to come in May, and see about a 50% chance the Fed could enact four such hikes in 2022, according to the CME’s FedWatch Tool.

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Lael Brainard, a Federal Reserve governor whom President Biden has nominated to be the central bank’s new vice chair, plans to tell lawmakers that the central bank will use its policies to wrestle inflation under control when she testifies at her confirmation hearing.Ms. Brainard, who will face vetting before the Senate Banking Committee at 10 a.m. on Thursday, is likely to garner considerable support among Democrats and may pick up some Republican votes, though how many are unclear at this point.Her nomination — and her new role at the Fed if the Senate confirms her — comes at a challenging economic moment. While unemployment is falling rapidly, inflation has taken off, with a report on Wednesday showing that a key price index rose in December at the fastest pace since 1982.“We are seeing the strongest rebound in growth and decline in unemployment of any recovery in the past five decades,” Ms. Brainard will say, according to her prepared remarks. “But inflation is too high, and working people around the country are concerned about how far their paychecks will go.”Ms. Brainard will also tell lawmakers that the Fed’s policies are “focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone,” calling that the central bank’s “most important task.”After nearly two years of propping up a virus-stricken economy by keeping interest rates at rock bottom and buying government-backed debt, Fed officials began to slow their large bond purchases late last year. That program is on track to end in March. Officials have signaled in recent weeks that they also expect to lift interest rates to make borrowing more expensive, slowing demand and helping to cool the economy.Markets increasingly expect four rate increases in 2022, which would put the Fed’s short-term policy interest rate just above 1 percent.“Today the economy is making welcome progress, but the pandemic continues to pose challenges,” Ms. Brainard will say. “Our priority is to protect the gains we have made and support a full recovery.”Ms. Brainard has been at the Fed since 2014, spanning the Obama, Trump and Biden administrations. Before that, she was a top international official at the Treasury Department. An economist and a Democrat, she had been seen as a potential contender to be Treasury secretary or Fed chair during the Biden administration.She has a good working relationship with Jerome H. Powell, the Fed chair, whom Mr. Biden has renominated for a second term. She will use her prepared statement to emphasize that she has worked for many administrations in Washington — Democrats and Republicans alike — while pledging to take the Fed’s mission to fight inflation and its independence from partisan wrangling seriously.“I will bring a considered and independent voice to our deliberations,” she will say. More

The new law allocates $11.7 billion for wastewater and stormwater projects. Will it get to the impoverished communities who need it most?HAYNEVILLE, Ala. — What babbles behind Marilyn Rudolph’s house in the rural countryside is no brook.A stained PVC pipe juts out of the ground 30 feet behind her modest, well-maintained house, spewing raw wastewater whenever someone flushes the toilet or runs the washing machine. It is what is known as a “straight pipe” — a rudimentary, unsanitary and notorious homemade sewage system used by thousands of poor people in rural Alabama, most of them Black, who cannot afford a basic septic tank that will work in the region’s dense soil.“I’ve never seen anything like it. It’s kind of like living with an outhouse, and I can never, ever get used to it,” said Ms. Rudolph’s boyfriend Lee Thomas, who moved in with her three years ago from Cleveland.“I’ve lived with it all my life,” said Ms. Rudolph, 60.If any part of the country stands to see transformational benefits from the $1 trillion infrastructure act that President Biden signed in November, it is Alabama’s Black Belt, named for the loamy soil that once made it a center of slave-labor cotton production. It is an expanse of 17 counties stretching from Georgia to Mississippi where Black people make up three-quarters of the population.About $55 billion of the infrastructure law’s overall funding is dedicated to upgrading systems around the country that handle drinking water, wastewater and stormwater, including $25 billion to replace failing drinking-water systems in cities like Flint, Mich., and Jackson, Miss.Hayneville’s town square. The infrastructure package targets funding toward “disadvantaged” areas like Hayneville and surrounding towns, part of the Biden administration’s goal of redressing structural racism.Charity Rachelle for The New York TimesLess attention has been paid to the other end of the pipe: $11.7 billion in new funding to upgrade municipal sewer and drainage systems, septic tanks, and clustered systems for small communities. It is a torrent of cash that could transform the quality of life and economic prospects for impoverished communities in Alabama, Mississippi, North Carolina, Oklahoma, Illinois, Michigan and many tribal areas.In this part of Alabama, the center of the civil rights struggle 60 years ago, the funding represents “a once-in-a-lifetime chance to finally make things right, if we get it right,” said Helenor Bell, the former mayor of Hayneville in Lowndes County, who runs the town’s funeral home.But while the funding is likely to lead to substantial improvements, there are no guarantees it will deliver the promised benefits to communities that lack the political power or the tax base to employ even the few employees needed to fill out applications for federal aid.“I am very worried,” said Catherine Coleman Flowers, a MacArthur fellow whose 2020 book “Waste” highlighted the sanitation crisis in Lowndes County. “Without federal intervention, we would have never had voting rights. Without federal intervention, we will never have sanitation equity.”Mark A. Elliott is an engineering professor at the University of Alabama who works with an academic consortium that is designing a waste system optimized for the region’s dense clay soil. He said he was concerned that more affluent parts of the state might siphon off federal assistance intended for the poor.“My hope is that at least 50 percent of this money goes to the people who are in most desperate need, not for helping to subsidize the water bills of wealthy communities,” Mr. Elliott said. “Sanitation is a human right, and these people need help.”Straight pipes are just one element of a more widespread breakdown of antiquated septic tanks, inadequate storm sewers and poorly maintained municipal systems that routinely leave lawns covered in foul-smelling wastewater after even a light rainstorm.The infrastructure package targets funding toward “disadvantaged” areas like Hayneville and surrounding towns, part of the Biden administration’s goal of redressing structural racism. Yet the infrastructure package gives states broad latitude in how to allocate the funding, and it contains no new enforcement mechanisms once the money is out the door.A PVC pipe behind Ms. Rudolph’s house spews raw wastewater whenever someone flushes the toilet or runs the washing machine.Matthew Odom for The New York TimesThe wastewater funding is moving through an existing federal-state loan program that typically requires partial or complete repayment, but under the new legislation, local governments with negligible tax bases will not have to pay back what they borrow. As an additional enticement, Congress cut the required state contribution from 20 percent to 10 percent.“A lot of people know that the bill isn’t just about drinking water, but the wastewater part is just as important,” said Senator Tammy Duckworth, Democrat of Illinois, who helped draft the provisions after assisting two small cities in her state, Cahokia Heights and Cairo, upgrade failing sewer systems that flooded neighborhoods with raw sewage.The Environmental Protection Agency, which is administering the program, said in November that the first tranche of funding for drinking water and wastewater projects, $7.4 billion, would be sent to states in 2022, including about $137 million for Alabama.Biden administration officials are confident the scale of the new spending — which represents a threefold increase in clean water funding over the next five years — will be enough to ensure poor communities gets their fair share. “We want to change the way E.P.A. and states work together to ensure overburdened communities have access to these resources,” said Zachary Schafer, an agency official overseeing the implementation of the program. But major questions remain — including whether individual homeowners without access to municipal systems can tap the money to pay for expensive septic systems — and the guidelines will not be ready until late 2022. While the revolving loan fund is generally regarded as a successful program, a study last year by the Environmental Policy Innovation Center and the University of Michigan found that many states were less likely to tap revolving loan funds on behalf of poor communities with larger minority populations.Alabama’s revolving loan fund has financed few projects in this part of the state in recent years, apart from a major wastewater system upgrade in Selma, according to the program’s annual reports.The water funding is not likely to be divvied up in Alabama until later this year. The Republican-controlled state legislature is still negotiating with Gov. Kay Ivey, a Republican, over what to do with tens of millions of dollars allocated through the $1.9 trillion stimulus package Mr. Biden signed in March.A flooded yard in Hayneville in 2019. Straight pipes are just one element of a more widespread infrastructure breakdown in the area.Julie Bennett/Associated PressEvery member of the state legislature is up for re-election next year, and legislators from bigger, more powerful communities in Birmingham, Huntsville and Mobile, eager to deliver to voters, have already begun preparing their applications.The Infrastructure Bill at a GlanceCard 1 of 5The bill receives final approval. More

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 3.52% from 3.33% for loans with a 20% down payment.
That is the highest rate since March 2020. It was 64 basis points lower the same week one year ago.
Mortgage applications to purchase a home rose 2% last week compared with the previous week.

An “Open House” sign is displayed in the front yard of a home for sale in Columbus, Ohio.
Ty Wright | Bloomberg via Getty Images

Mortgage rates have moved to their highest level in more than a year, and that may have potential homebuyers nervous that their affordability window is closing faster than expected. Home prices are still gaining, and winter is historically the slowest season for the housing market, but mortgage demand from buyers moved higher.
Last week purchase loan application volume rose 2% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. This jibes with anecdotal comments from real estate agents that they are seeing higher-than-normal early January demand. Applications were still 17% lower than the same week one year ago, but some of that is due to much lower supply in the market. Supply usually increases in December, but it did not last month.

This, as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 3.52% from 3.33%, with points decreasing to 0.45 from 0.48 (including the origination fee) for loans with a 20% down payment. That is the highest rate since March 2020. It was 64 basis points lower the same week one year ago.
“Mortgage rates increased significantly across all loan types last week as the Federal Reserve’s signaling of tighter policy ahead pushed U.S. Treasury yields higher,” said Joel Kan, an MBA economist. “The housing market started 2022 on a strong note. Both conventional and government purchase applications showed increases, with FHA purchase applications increasing almost 9%, and VA applications increasing more than 5%.”
FHA and VA loans are low and no down payment options often used by first-time buyers.
Applications to refinance a home loan fell 0.1% from the previous week and were 50% lower than the same week one year ago. Refinance volume is now at the lowest level in more than a month. As mortgage rates rise, fewer and fewer borrowers can benefit from a refinance.
Mortgage rates rose sharply on Monday of this week, according to Mortgage News Daily, but settled back slightly on Tuesday.
“The big question now is whether the worst is now over for this abrupt move toward higher rates. The answer is a definitive ‘maybe!’ It might even be ‘probably,'” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “Unfortunately, that doesn’t mean rates can’t go higher, simply that the pace may be moderating from here.”

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Inflation closed out 2021 on a high note, bad news for the Biden White House and for economic policymakers, as rapid price gains erode consumer confidence and cast a shadow of uncertainty over the economy’s future.The Consumer Price Index most likely climbed 7 percent in the year through December, and 5.4 percent after volatile prices such as food and fuel are stripped out, economists in a Bloomberg survey estimated. The last time the main inflation index eclipsed 7 percent was 1982.What to Know About Inflation in the U.S.Inflation, Explained: What is inflation, why is it up and whom does it hurt? We answered some common questions.The Fed’s Pivot: Jerome Powell’s abrupt change of course moved the central bank into inflation-fighting mode.Fastest Inflation in Decades: The Consumer Price Index rose 6.8 percent in November from a year earlier, its sharpest increase since 1982.Why Washington Is Worried: Policymakers are acknowledging that price increases have been proving more persistent than expected.The Psychology of Inflation: Americans are flush with cash and jobs, but they also think the economy is awful.Policymakers have spent months waiting for inflation to fade, hoping that supply chains would catch up with booming consumer demand. Instead, continued waves of coronavirus infections have locked down factories, and shipping routes have struggled to work through extended backlogs as consumers continue to buy goods from overseas at a rapid clip. What happens next may be the biggest economic policy question of 2022.Inflation F.A.Q.Card 1 of 6What is inflation? More

Shares of Albertsons, Kroger and Walmart fell on Tuesday, as investors worried that omicron-fueled worker shortages and supply chain delays would hurt major grocers.
Albertsons CEO Vivek Sankaran said on an earnings call that the latest spike in Covid cases has delayed the recovery to more typical levels.
The omicron variant has exacerbated worker shortages in nearly every industry, from airlines to restaurants.

Bread aisle shelves at a Target are seen nearly empty as the U.S. continues to experience supply chain disruptions in Washington, U.S., January 9, 2022.
Sarah Silbiger | Reuters

Empty shelves have returned at supermarkets as grocery employees call out sick and truckloads of food arrive late.
That’s one of the latest outcomes of the omicron variant, which is straining the workforce. Investors are seeing the pressure and bracing for a longer period of high costs for labor, transportation and food.

Shares of major grocers including Albertsons, Kroger and Walmart fell Tuesday. Albertsons shares fell 9.75% to $28.79 at market close, after the company detailed the supply chain challenges and inflated costs it’s seeing on its earnings call. The dive in its stock occurred even though the grocer raised its fiscal 2021 forecast. Shares of Kroger fell about 3%, while Walmart shed less than 1%.
Covid cases and hospitalizations have hit records in the U.S., as the highly contagious variant spreads. The country reported about 1.5 million new cases on Monday, according to data compiled by Johns Hopkins University. Hospitalizations have surpassed last winter’s peak, with 144,441 Americans hospitalized with the virus as of Sunday, according to data tracked by the Department of Health and Human Services.

Workers feel the strain

Grocery store workers are feeling the effects of omicron, too. Samantha Webster helps replenish coolers with butter, gallons of milk and more as dairy manager of a Safeway store in the San Francisco Bay Area. Safeway is owned by Albertsons.

Since early December, she said more and more employees have had to take off from work because of getting Covid or having close contact with someone who is sick. She said 15 employees are currently out of the store’s nearly 60-person staff.
Fewer pallets are arriving from Safeway’s warehouses and there are not enough grocery workers to help unload them, she said.

In the dairy department, there are gaping holes where there used to be cream cheese and yogurts. Fresh bagels and loaves of bread are missing in the bakery aisle. And in the produce department, potatoes are running low.
In other aisles, she said there are signs of strain, too, such as a shelf filled with cans of clam chowder soup because other varieties, like minestrone and pea soup, did not arrive.
“The shelves are becoming more and more bare,” she said. “One person can’t keep an entire department going.”

CEO says Covid prolonging out-of-stocks

Albertsons CEO Vivek Sankaran said on the call that the grocer has had low inventory or missing items in some categories for several months. He said the latest spike in Covid cases is prolonging some of those out-of-stocks.
“We were expecting that supply issues to get more resolved as we go into this period right now,” he said on the call. “Omicron has put a bit of a dent on that. So there are more supply challenges and we would expect more supply challenges over the next four weeks to six weeks.”
The new coronavirus variant is exacerbating worker shortages across industries, from restaurants and retailers to airlines. Company leaders are being forced to make tough decisions, such as slashing service hours, canceling flights and closing stores. That has started to show up in the sales numbers, too. Lululemon is among the retailers that have warned that fourth-quarter earnings and revenue would be on the low end of estimates as it feels the effects of having reduced hours and limited staff.
For grocers, though, the challenge may be felt more because it is low-margin business where companies often have less room to raise employee wages, pay for overtime or pass on higher costs to customers. Some shoppers have less money to spend, too. The child tax credit, which gave families monthly payments, ended in December.
On Tuesday, Albertsons leaders said that costs have risen on ingredients, packaging, transportation and labor. They said the grocer has passed through some of that inflation, but has tried to hold the line on prices of essential items that customers buy frequently.

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