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

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    The Federal Reserve’s inflation gauge popped in June from a year earlier. Economists think it will begin to moderate.The Federal Reserve’s preferred measure of inflation climbed by 4 percent in June compared with a year earlier, as a rebounding economy and strong demand for goods and services helped to push prices higher.The gains in the Personal Consumption Expenditures inflation index were the fastest since 2008, but in line with economists’ expectations. That rapid pace is not expected to last — and how much and how quickly it will fade is the economic question of the moment.Inflation has been surprisingly quick this year. Economists knew prices would post strong increases as they were measured against weak figures from 2020, when costs for many common purchases slumped. But the jump in recent months has been more intense than most were expecting.Prices for goods and services risePercent change in personal consumption expenditures index from prior year

    Source: Bureau of Economic AnalysisBy The New York TimesThat’s partly because supply bottlenecks have emerged across America’s reopening economy. Computer chip shortages pushed up the prices of electronics and delayed automobile production, causing used car prices to surge as people scrambled to find vehicles. Employers are struggling to hire back workers fast enough to meet returning demand, and wages and prices at restaurants and some other service providers have begun to move higher.Spending remains strong, Friday’s release also showed, climbing 1 percent in June compared with May. That was more than the 0.7 percent pop that economists in a Bloomberg survey had anticipated, and adjusted for inflation, it was still up 0.5 percent.Even as consumer demand holds up, June’s inflation data may be a high point in the price pressure saga. Last year’s low figures are becoming a less important factor, and many economists expect the rapid pace of price gains to begin to moderate in the coming months. A breakneck increase in used vehicle prices, which has been large enough to push overall prices higher, showed signs of moderating in July.Yet how quickly inflation will fall back to the Fed’s 2 percent target, which it tries to hit on average over time, is increasingly uncertain. It is hard to know how quickly the supply chain snarls that have complicated the price picture so far this year will clear up, or whether new ones will emerge. Climbing coronavirus cases around the world and the emergence of new variants, like Delta, could make for continued disturbances in global production and shipping routes, ones that will hit just in time for the back-to-school and the holiday shopping seasons.“The problem with the Delta variant is that the factors that are reducing the supply of goods and labor are elongated and continue,” said Constance L. Hunter, chief economist for the accounting firm KPMG. “This prolongs many of the components of the pandemic that were causing inflation.”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.The fresh inflation data, released by the Commerce Department, came out later than a separate Labor Department inflation report. But they are closely watched because the Fed uses the Personal Consumption Expenditure index — which tracks things people consume but do not directly pay for, like medical care — to judge progress toward its inflation target.“The U.S. economy surprised us all,” James Bullard, president of the Federal Reserve Bank of St. Louis, said during a speech on Friday. “Quite a bit of inflation, much more than we have experienced historically. Of course, we do expect that to moderate, but I don’t think it’s going to moderate completely in 2022.”The Fed is willing to look through inflation it expects to be temporary, but it would be concerned if it saw rapid price gains turning into a stickier situation. Officials are especially watching trends like rising wages for a sense of whether price gains will last.Wages and salaries rose 0.9 percent in the second quarter, slightly slower than in the first three months of the year, according to separate data released Friday by the Labor Department. But pay is rising rapidly in some industries that are reopening as the pandemic ebbs: Wages in the leisure and hospitality sector rose 2.8 percent in the second quarter, and are up 6.1 percent over the past year.Service workers are getting raisesPercent change from prior quarter in private-sector wages and salaries

    Note: Data is seasonally adjustedSource: Bureau of Labor StatisticsBy The New York TimesShould pay increases turn into a cycle — one in which workers regularly ask for more money to cover rising costs, and employers give raises but pass the expense on — it could make for persistent inflation down the road. Fed officials generally do not think that is happening right now.“There is a form of wage inflation that can lead to price inflation, and we’re not seeing that right now,” Jerome H. Powell, the central bank’s chair, said at a news conference on Wednesday.Mr. Powell and many of his colleagues have maintained that price pressures should fade as the economy gets back to normal — Mr. Bullard is among the more concerned Fed officials when it comes to inflation. Many central bankers point out that even though inflation has come in hot in recent months, consumer expectations for future inflation remain at historically normal levels.White House economic officials have been stressing similar points, and arguing that high inflation is no reason to dial back their policy ambitions, which they say would not add to price pressures. The Biden administration is trying to shepherd a $1 trillion bipartisan infrastructure bill through Congress, one that includes $550 billion in new spending to make far-reaching investments in the nation’s transit and public works.But Republicans have seen rising inflation as a poignant way to criticize the Biden administration, which they say is mismanaging the economic reopening and allowing prices to gallop out of control.“There’s no question we have serious inflation right now,” Senator Patrick J. Toomey, a Republican from Pennsylvania, said in a CNN interview last week. “There is a question about how long it lasts. And I’m just worried that the risk is high that this is going to be with us for a while.”Even some central bankers are becoming wary as inflation rises.“The risk on inflation is that it does not fall back as rapidly as we had hoped, or that we get some other kind of shock that sends inflation even higher in 2022,” Mr. Bullard said on Friday. He argued that the central bank ought to start slowing down its big bond-buying campaign, so that it can finish that “taper” early next year and be prepared to lift interest rates as necessary.“It’s not that we’d have to lift off sooner,” he said. “But we’d want to have the option.” More

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    The Fed’s favorite price index rose 4 percent.

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    The Federal Reserve’s favorite inflation index climbed by 4 percent in June compared with a year earlier, as a rebounding economy and soaring demand for goods helped to push prices higher.The gains in the Personal Consumption Expenditures inflation index were the fastest since 2008, but in line with economists expectations. That rapid pace is not expected to last, but how much and how quickly it will fade is the economic question of the moment.Inflation has been surprisingly rapid this year. Economists knew prices would post strong increases as they were measured against weak figures from 2020, when costs for many common purchases slumped. But the jump has been more intense than most were expecting.That’s partly because supply bottlenecks have emerged across America’s reopening economy. Computer ship shortages pushed up the prices of electronics and delayed automobile production, causing used car prices to surge. Employers are struggling to hire back workers fast enough to meet returning demand, and prices for restaurant meals and some other services have begun to move higher.June’s personal consumption expenditure price data may be a high point in the inflationary saga. Last year’s low figures are fading from the data, and many economists expect the rapid pace of price gains to begin to moderate in the coming months.On a monthly basis, inflation climbed 0.5 percent from May to June, slightly less than the 0.6 percent economists in a Bloomberg survey had expected. The core inflation index, which strips out volatile food and fuel, climbed 3.5 percent over the past year.How quickly inflation will fall back to the Fed’s 2 percent target, which it tries to hit on average over time, is increasingly uncertain. It is hard to know how quickly the supply chain snarls that have complicated the price picture so far this year will clear up, or whether new ones will emerge. Climbing coronavirus cases around the world could make for continued disturbances in global production and shipping routes, ones that will hit just in time for back-to-school and the holiday shopping season. More

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    Consumer Spending Was a Big Factor in G.D.P. Expansion

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    Consumers are fueling the economic recovery.Consumer spending rose 2.8 percent in the second quarter, helping to offset declines in other parts of the economy. Spending on services was particularly robust as widespread vaccinations and falling coronavirus cases led Americans to return to restaurants, nail salons and other in-person activities.“We finally saw the full pivot to services driving consumer spending instead of goods,” said Diane Swonk, chief economist for the accounting firm Grant Thornton.Spending on goods remained strong, too, partly reflecting the continuing impact of the third round of stimulus checks, which arrived in Americans’ bank accounts in the spring.Business investment was also relatively strong, rising 1.9 percent, as companies stepped up spending on technology and equipment.The housing sector, however, was a drag on growth, shrinking 2.5 percent after three straight quarters of strong gains. That might seem surprising given stories of frenetic bidding wars in red-hot housing markets. But what matters to G.D.P. is construction, and new home building has been hampered by shortages of labor and supplies, and in particular the high price of lumber.Overall growth in the second quarter fell significantly short of economists’ expectations. But that was largely because of weaker-than-expected government spending, particularly at the state and local level, as well as an unexpectedly sharp drop in inventories. Both of those factors are likely to reverse later this year. More

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    Covid Variant Adds to Worker Anxieties

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    Some see an undue rush by employers to get workplaces back to normal, whether by dropping precautions or imposing new rules.When Kelly Harris, a personal grocery shopper in Steubenville, Ohio, was vaccinated in March against Covid-19, it was a huge relief. “I felt the weight of the world off my shoulders,” she said.Her sense of relief has turned to dread. After most supermarkets eased masking requirements in May, mask wearing plummeted in her area. She worried about bringing the virus home to her school-age children.Then, as the Delta variant proliferated in recent weeks, her anxiety levels spiked again. “I try to stay away from everybody and use self-checkout,” she said. “It has me pretty stressed out.”Judging from the policies of the stores Ms. Harris frequents, many employers appear to regard the recent increase in Covid infections as a mere blip on the long-awaited road to normal.Some companies have intensified their efforts to return to a pandemic before-times, easing safety protocols while expecting employees to return to previous routines.But for many workers, the perception is quite different: a sense of rising vulnerability and frustration even for the vaccinated, who find themselves inundated with stories of breakthrough infections and long Covid.The gulf between employers’ actions and workers’ concerns appears to foreshadow a period of rising tensions between the two, and unions appear to be positioning themselves for it. Some unions are calling on companies to do more to keep members safe, while others are questioning new vaccination requirements. The two positions may seem at odds, but they send a common message: Not so fast.“I think we’re rushing to return to normal,” said Marc Perrone, the president of the United Food and Commercial Workers, which has over one million members in industries like groceries and meatpacking.Many workers complain about a mismatch between plans their employers appear to have made before the rise of the variant and the reality of the past few weeks.For much of the pandemic, Amazon has offered free on-site Covid testing for employees. It incorporated a variety of design features into warehouses to promote social distancing. But a worker at an Amazon warehouse in Oregon, who did not want to be named for fear of retribution, said there had been a gradual reduction in safety features, like the removal of physical barriers to enforce social distancing.Kelly Nantel, an Amazon spokeswoman, said that the company had removed barriers in some parts of warehouses where workers don’t spend much time in proximity, but that it had kept up distancing measures in other areas, like break rooms.“We’re continuously evaluating the temporary measures we implemented in response to Covid-19 and making adjustments in alignment with public health authority guidance,” Ms. Nantel said. She added that the company would “begin ramping down our U.S. testing operations by July 30, 2021.”At REI, the outdoor equipment and apparel retailer, four workers in different parts of the country, who asked not to be named for fear of workplace repercussions, complained that the company had recently enacted a potentially more punitive attendance policy it had planned to put in place just before the pandemic. Under the policy, part-time workers who use more than their allotted sick days are subject to discipline up to termination if the absences are unexcused. The workers also said they were concerned that many stores — after restricting capacity until this spring — had become more and more crowded.Halley Knigge, a spokeswoman for REI, said that under its new policies the company allowed part-time workers to accrue sick leave for the first time and that the disciplinary policy was not substantively new but merely reworded. The stores, she added, continue to restrict occupancy to no more than 50 percent capacity, as they have since June 2020.Workers elsewhere in the retail industry also complained about the growing crowds and difficulty of distancing inside stores like supermarkets. Karyn Johnson-Dorsey, a personal shopper from Riverside, Calif., who finds work on Instacart but also has her own roster of clients, said it had been increasingly difficult to maintain a safe distance from unmasked customers since the state eased masking and capacity restrictions in mid-June.“You have whole families who are picking out a pound of ground beef,” she said. “Children who are not vaccinated because of age are touching everything, not masked, either.”Amazon’s warehouse on Staten Island. Workers at Amazon have become concerned in recent weeks that the company is overly eager to wind down safety measures.Chang W. Lee/The New York TimesMs. Johnson-Dorsey, who had Covid last year and was vaccinated in March, said that what she was encountering in stores had become a major source of worry as the Delta variant spread. “I think it’s just showing that maybe we jumped too quickly to try and beat this imaginary deadline,” she said.On Tuesday, after the Centers for Disease Control and Prevention provided new guidance on masking, some employers said they would adjust their policies as warranted.“We’d always defer to state and local ordinances on capacity and masking mandates,” said a spokeswoman for Albertsons, which also owns Safeway and Jewel-Osco. “We don’t have a national mandate on capacity at this time.”Ms. Harris and Ms. Johnson-Dorsey, the personal shoppers, do not belong to a union, but Bob O’Toole, the president of the food workers local in Chicago, which represents more than 15,000 workers in the grocery, meatpacking and food-processing industries, said many of his members shared their sentiments.“The employees don’t feel as though the employers are doing anything to enhance safety after so many precautions were relaxed,” he wrote in a text message..css-1xzcza9{list-style-type:disc;padding-inline-start:1em;}.css-3btd0c{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-3btd0c{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-3btd0c strong{font-weight:600;}.css-3btd0c em{font-style:italic;}.css-w739ur{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}#NYT_BELOW_MAIN_CONTENT_REGION .css-w739ur{font-family:nyt-cheltenham,georgia,’times new roman’,times,serif;font-weight:700;font-size:1.375rem;line-height:1.625rem;}@media (min-width:740px){#NYT_BELOW_MAIN_CONTENT_REGION .css-w739ur{font-size:1.6875rem;line-height:1.875rem;}}@media (min-width:740px){.css-w739ur{font-size:1.25rem;line-height:1.4375rem;}}.css-9s9ecg{margin-bottom:15px;}.css-uf1ume{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;}.css-wxi1cx{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;-webkit-align-self:flex-end;-ms-flex-item-align:end;align-self:flex-end;}.css-12vbvwq{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;}@media (min-width:740px){.css-12vbvwq{padding:20px;width:100%;}}.css-12vbvwq:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-12vbvwq{border:none;padding:10px 0 0;border-top:2px solid #121212;}.css-12vbvwq[data-truncated] .css-rdoyk0{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-12vbvwq[data-truncated] .css-eb027h{max-height:300px;overflow:hidden;-webkit-transition:none;transition:none;}.css-12vbvwq[data-truncated] .css-5gimkt:after{content:’See more’;}.css-12vbvwq[data-truncated] .css-6mllg9{opacity:1;}.css-qjk116{margin:0 auto;overflow:hidden;}.css-qjk116 strong{font-weight:700;}.css-qjk116 em{font-style:italic;}.css-qjk116 a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;text-underline-offset:1px;-webkit-text-decoration-thickness:1px;text-decoration-thickness:1px;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:visited{color:#326891;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:hover{-webkit-text-decoration:none;text-decoration:none;}Mr. Perrone, the international president for the food workers union, said in a statement on Tuesday that the new C.D.C. guidance wasn’t sufficient and urged a national mask mandate.Public-sector workers, too, have expressed safety concerns as officials move to get government services back to prepandemic norms. In Chicago, Mayor Lori Lightfoot recently brought back office-based city employees who had been working remotely during the pandemic.But one of the unions representing them, the Illinois council of the American Federation of State, County and Municipal Employees, has argued that more needs to be done to space workers apart and improve ventilation.“The workplaces where those people work could be sources of transmission because we live in a cubicle world where people are often very close together,” said Roberta Lynch, the union’s executive director in the state. “We want to ensure that people who have high-risk work locations are able to work safely.”A spokeswoman for the mayor did not respond to a request for comment.The Office and Professional Employees International Union, which represents nurses who are increasingly subject to vaccine requirements around the country, is unlikely to take a position on the mandates per se but will seek to have a voice in setting policy to guarantee that employees are treated fairly, said Sandy Pope, its bargaining director. For example, the union wants to ensure that no workers are disciplined or fired for refusing the vaccine if they have legitimate reasons for doing so.“We will demand to be consulted on these things,” Ms. Pope said. “I know a couple of members who have legitimate health issues that have prevented them from being vaccinated.”The union, which also represents clerical workers at insurance companies, credit unions and universities, has employee-management committees pushing to arrange adequate ventilation systems for workers, with mixed results, she said. She added that the union was preparing for a potential standoff in September, when many employers have said they will end hybrid work arrangements and require full-time attendance.“I think that’s going to be the big fight,” Ms. Pope said. “A number of employers had September as the target date.”The Culinary Workers Union, which represents casino workers in Las Vegas, has been calling for the return of a mask requirement for all customers indoors since Nevada relaxed the rule in May.John Locher/Associated PressBy contrast, the United Automobile Workers union said it was working with major automakers through a Covid task force to help make safety decisions. General Motors and Ford Motor both recently reinstituted masking for all employees at separate sites in Missouri, and Ford reinstituted masking at offices in Florida, after the companies assessed virus-related data in those regions. And a number of employers, including Amazon and the meat processor JBS, have had vaccination facilities for workers on site.Some unions may have been spared a fight by the C.D.C.’s move on Tuesday. In Las Vegas, the Culinary Workers Union, which represents casino workers, has been calling for the return of a mask requirement for all customers indoors since Nevada relaxed the requirement in May. The casinos had not heeded the call, but after the C.D.C. announcement, the state said it would reimpose an indoor mask mandate.In other cases, a reckoning still looms. The federal government’s mask mandate on airplanes is set to expire after Sept. 13, and unions representing airplane personnel are uneasy about the possibility that it will lapse, though Tuesday’s C.D.C. announcement suggests it may be more likely to be extended. The unions have applauded the airlines for moving to stop the spread of the coronavirus on airplanes by installing more sophisticated air filtration systems, but maintain that they are not sufficient.“Filtration is helpful for circulated air in the cabin,” said Sara Nelson, president of the Association of Flight Attendants. “But it doesn’t stop the general spread from one person to another sitting six inches apart.” More

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    Will the Delta Variant Wreck the Recovery?

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    Probably not. But there are potential challenges with both supply and demand that put the economy at risk.Empty streets in downtown Boston last month. If the Delta variant plays havoc with companies’ return-to-work plans, such scenes could continue.Philip Keith for The New York TimesThe good economic news, when it comes to the ascendant Delta variant of the coronavirus, is that it puts the economy at risk in only two ways. The bad news: They are supply and demand.So far, the recovery remains robust by most available data. Real-time indicators of business activity show little evidence that Americans are pulling back their economic activity in any meaningful way.But while there is no reason to expect a repeat of the huge disruption of 2020, the new variant puts at risk the kind of rapid recovery that has been underway for months. Just as major parts of the economy were figuring out how to return to full functioning, this may amount to throwing sand in the gears.The emergence of the variant has already caused several wobbly days on Wall Street. And the chairman of the Federal Reserve, Jerome Powell, is likely to face questions about the economic implications of Delta in a news conference Wednesday afternoon after a meeting of the Fed’s policy committee.At the White House, officials are monitoring the variant closely, but see no evidence that it is hurting the recovery — or that policymakers will need to inject another dose of short-term fiscal stimulus anytime soon.“Overall it looks like the risks are considerably diminished compared to the height of the crisis,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. “But I do think you have to worry about the macroeconomic risks, and our experience over the last 18 months has shown that.”As economists and policymakers game out the nature of those risks, what stands out is not the chance of a major shutdown. Instead, the concerns are the constraints on the availability of workers and on the supply and demand for many services.On the supply side, there are already severe disruptions in many supply chains, especially those that rely on goods imported from Asia. These create ripple effects for the United States, such as a shortage of computer chips that is in turn hindering automobile production and contributing to high inflation.Many Asian nations — especially those behind the curve on vaccinating their populations — are putting in lockdowns to try to stop the spread of the Delta variant, which threatens to make those shortages and price spikes worse.“We had already expected that semiconductor shortages would continue into 2022, and that’s virtually assured now,” said Sara Johnson, the executive director of global economics for I.H.S. Markit. She noted that new restrictions were limiting production activity in countries including Vietnam, Indonesia, Thailand and Malaysia.A more domestically focused supply-side risk comes with the U.S. labor supply.Employers have been complaining about labor shortages, and if the renewed risk of illness makes even vaccinated adults reluctant to enter or re-enter the work force, those shortages could worsen.That is particularly true if schools were to return to remote learning — even for brief periods — making it all the harder for parents to work.“What happens if you have a flare-up?” Ms. Bostjancic said. “Do you shut school for a week? That’s very disruptive to parents who want to return to the labor force.”On the demand side, there is some comfort in the seemingly robust spending from American consumers, who are flush with accumulated savings from the pandemic, federal stimulus dollars and rising wages.The consumer confidence index rose slightly in July, the Conference Board said Tuesday, suggesting that the emergence of the variant has so far done no major damage to consumers’ willingness to spend.There is even a perverse twist that could reduce the variant’s impact on demand for things like restaurant meals and concert tickets. The rate of infection has remained relatively low in places with high vaccination rates. In the places where infections are skyrocketing, public sentiment tends to be overwhelmingly against anything resembling a lockdown.Still, as noted by two Bank of America economists, Stephen Juneau and Anna Zhou, Michigan saw a pullback in consumer spending on services during its surge of infections earlier this year, even absent formal restrictions on activity.“So far we have seen little evidence of the Delta variant significantly affecting economic activity or spending on services,” they wrote in a recent research note. “However, survey data point to increased hesitancy of being in physical locations and concerns over the virus.”That could prove particularly relevant in a few segments of the economy that have been slowest to recover from the pandemic recession.Many white-collar employers have been on the verge of bringing workers back to offices. If those plans change because of the variant, offices and downtown streets risk staying emptier for longer, implying less demand for office space and downtown restaurant meals.There is a similar story in the business travel sector, which has lagged leisure travel in returning to health. Will conferences and trade shows return with the kind of robust attendance many hotels, convention centers and event planners have been hoping for?One particularly tricky thing is that the solution to these potential economic ripples lies in the public health arena. If the recovery stalls, fiscal and monetary policy are unlikely to play much of a constructive role. Already, enough money is flowing through the economy to make overheating and inflation a top-of-mind concern.There may be a demand shortfall for very specific things, like sandwiches from a downtown restaurant or rooms in a convention center hotel. But it is hard to argue in the summer of 2021 that there is much risk of inadequate aggregate demand.White House officials say vaccinations over the past several months — and strong support from the federal government for people and businesses — have set the foundation for the economy to maintain momentum even as Delta spreads. And they believe consumers will react differently this time to the spreading virus.In past waves, people who worried about a higher risk of contracting Covid-19 could either assume that risk and keep up their normal economic activities, or pull back spending in places like retail stores and restaurants. Now, the officials say, spooked consumers have a third choice. They can get vaccinated and largely maintain their typical routines — or, if they’re already vaccinated, just keep spending the way they have been.All of that means that the policy response to the Delta variant, as for Covid all along, relies more heavily on getting the best possible public health outcomes, with conventional economic policy a secondary concern.Just when it seemed that the pandemic policy story was finally winding down, in other words, it is starting to repeat itself.Jim Tankersley contributed reporting. More

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    The Pandemic Changed How We Spent Our Time

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    A lonely year Average time spent per day during waking hours, May through December in 2020 vs. 2019 No time 2 hours 4 hours 6 hours 8 hours Alone +57 min. With household members only +31 min. With people outside household –1 hour and 33 min. 2019 2020 Note: Excludes time spent on personal grooming […] More

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    Inflation Has Arrived, but Washington Isn’t Racing to Limit Price Pops

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    Policymakers, now more attuned to the costs of choking off growth early, are sticking by a patient approach as prices rise.Inflation has long been the boogeyman haunting the nightmares of economic policymakers from both parties — and controlling it has been a top economic priority. But as the economy reopens from pandemic shutdowns and prices spike, it is becoming clear just how much that conventional wisdom has shifted in recent years.After three decades of relative price stability and a long stretch of weak price gains, many economists and lawmakers had in recent years come to believe that trying too hard to avoid overheating the economy created its own risk by prematurely cooling growth and leaving workers on the sidelines.The tools that policymakers used to prevent overheating — raising interest rates and reining in government spending — also contributed to less hiring and slower wage growth. Policymakers have paid increasing attention to those trade-offs, especially as chronically slow price gains across the globe made government efforts to control inflation seem somewhere between futile and self-defeating.That view has remained mostly intact at the Federal Reserve and the White House even as prices pop, virus variants threaten to perpetuate supply-chain bottlenecks and some price increases, like rising rents, create the risk that high inflation might last for a while.The Biden administration is emphasizing the benefits of the current moment, which include higher wages and more bargaining power for workers, as it insists that inflation will fade over time. The Fed, which meets this week, is openly nervous about rising prices, but it isn’t doing anything abrupt to counteract them. It says it needs to weigh the risk of inflation against the threat of slowing a labor market that is still missing nearly seven million jobs compared with prepandemic levels.Republicans are condemning rising prices, warning that the administration needs to rein in its spending plans and that the Fed should withdraw support. Even some left-leaning economists have warned that things could get out of control and that central bank officials need to be on watch.Here is a snapshot of what is happening with inflation, including the risks, the rewards and how policymakers are thinking through a strange economic moment.Prices are up this year, and pretty markedly.Inflation is up across a variety of measures, and by significantly more than economists predicted earlier this year.The Consumer Price Index, a Labor Department gauge of how much a basket of goods and services costs to buy, rose 5.4 percent in the year through June. The Fed prefers a separate measure, the Personal Consumption Expenditures index. That gauge tracks both out-of-pocket expenses and the cost of things people consume but don’t directly pay for, like medical care. It climbed 3.9 percent through May.Prices have risen by more than Fed officials expected, based on both their public statements and their economic projections this year.Why the big jump? Some of it owes to temporary data quirks, which were expected to push inflation higher this year. Part of it has come as prices for airline tickets, hotel rooms and other pandemic-affected purchases rebound from last year, also as anticipated. But the surprisingly large part of the increase has come from a surge in consumer demand that is straining delivery routes and outstripping available supply for electronics, housing and laundry machines.That portion of the inflation is more tied to government policies, which put money into consumers’ pockets — and its future trajectory is a lot less predictable. Economists think the bottlenecks will fade, but by how much and how long it will take is uncertain.Those price increases could have a downside.Whether today’s inflation matters and warrants a response will depend on several factors.If, as the White House predicts, quick price gains fade as the economy returns to normal, they shouldn’t be terribly problematic. Households are likely to have to spend a little bit more on some goods and services but may also find that they are earning more. Workers are now seeing decent wage gains, though not quite enough to outpace price gains, and the labor market is expected to continue strengthening as inflation fades.The biggest price gains have also been concentrated in just a few categories, like used cars. Most families do not buy automobiles that often, so the hit from higher costs will not be as salient for consumers as an across-the-board rapid rise in prices for everything consumers buy, like clothing and milk.But if consumers and businesses come to expect higher prices and start accepting bigger price tags and demanding higher wages, that could broaden inflation and keep it elevated. That would be a problem. Rapid inflation makes life hard for people who live on savings, like retirees. If it outstrips pay gains, it can erode a consumer’s ability to buy goods and services. And if inflation becomes hard to predict, as it did in the 1970s and 1980s, it makes planning for the future hard for businesses and households.There are risks that inflation could take time to get back to normal.There are real reasons to worry that inflation could stick around. Supply-chain snarls are expected to fade with time, but new Covid-19 variants and renewed lockdowns in some countries could keep global trade chains from getting back to normal. That could keep prices for goods elevated. (On the flip side, Jason Furman at Harvard points out that renewed lockdowns would also probably drag down consumer demand, which could lead to softer price pressures.)There are other hot inflation risks. Wages are rising, which might feed into faster prices as employers try to cover costs. Rents — which were depressed — are accelerating, potentially a stickier source of inflationary pressure.If inflation becomes pernicious, the Fed has tools to contain it. The central bank is already coming up with a plan to slow its big bond purchases, which keep longer-term borrowing cheap and lift markets. It could also raise its main interest rate, which would trickle through the economy to slow lending and spending.“One way or another, we’re not going to be going into a period of high inflation for a long period of time, because, of course, we have tools to address that,” Jerome H. Powell, the Fed chair, testified this month. “But we don’t want to use them in a way that is unnecessary, or that interrupts the rebound of the economy.”A job fair in St. Louis last month. The Fed is nervous about rising prices, but it says it also needs to weigh the risk of slowing a labor market still missing seven million workers.Whitney Curtis for The New York TimesBut there are also real risks to premature action.As Mr. Powell alluded to, policymakers do not want to move too hastily in response to the recent data. Many officials argue that it does not make sense to react to what is expected to be a short-lived price pickup by dialing back fiscal ambitions or weakening monetary support — policy changes that would reduce demand and lead to slower hiring down the road.Should the Fed pull back support for the economy before many of the 6.8 million jobs that have gone missing since the start of the pandemic return, it could lead to a painful situation in which workers end up stuck out of work.That would cost families paychecks, hurt the country’s potential for growth and tip the economic scales toward employers, who benefit when many available workers are competing for jobs.For decades, “the sensible adult consensus — that the most important thing was to protect against inflation — had a huge cost, and that cost was wages stagnating,” said Benjamin Dulchin, director of the organizing group Fed Up. “The Fed can err on the side of corporate interests and keeping wages lower, or it can err on the side of workers’ interests.”Today’s inflation could offer benefits.Inflation does have some winners. People who owe debts find that they are easier to pay off, and middle-class households who own houses may find that their values appreciate. Research has suggested that inflation in advanced economies can shrink inequality, for instance.But that isn’t even the argument the Fed and the White House are making: They simply do not expect the higher prices to last forever, and they think the short-term costs are worth the long-term benefits of helping the economy through a tough period.Some Democrats think that voracious hiring bolstered by government spending and central bank support will give workers the power to bargain for higher wages — an ability that might last beyond the inflationary phase. And they have been trying to foster a swift recovery from the pandemic downturn, getting people back into jobs and businesses back into full swing quickly.Officials are being patient, even as inflation surprises them.Government officials are setting economic policy today with an eye on the last battle. After the deep 2007-9 recession, the government cut back on spending early and monetary policymakers lifted interest rates before price gains had returned to their 2 percent annual inflation goal. Price gains proceeded to get stuck below that target, and the labor market recovery may have taken longer than it needed to, since the economy had less support.As that episode underlined, slow-moving global trends — including aging demographics and free trade — seem to keep a lid on price gains these days. In Japan and in Europe, policymakers have spent years battling to coax inflation higher. They are worried in part by the looming threat of deflation, which discourages consumption and crushes debtors, who find their pay stagnating or declining as their debt loads remain unchanged.America’s current bout of price pressures actually seems to be helping to guide consumer expectations, which had been slipping lower, back into the comfort zone.And a few heady inflation numbers are a good problem to have, if you ask Kenneth Rogoff, a Harvard economist. The globe just experienced a devastating pandemic that was expected to wreck the economy.“In the current situation, the fact that the economy is booming and they didn’t quite plan for it is still a blessing,” he said. “It’s a rich man’s problem that we’re getting inflation.” More