May 9, 2021
By most accounts, the U.S economy is set to boom this summer: pent-up pandemic savings are burning a hole in consumers’ pockets, vaccines are rolling out and trillions of dollars in federal stimulus spending are working their way through the economy—not to mention the warmer weather ahead.
But the picture isn’t all rosy: some are worried the recovery might actually be too hot and prompt runaway inflation that erodes purchasing power and hurts households’ bottom lines.
Consumer price data for March painted a confusing picture—prices surged 2.6% on a year-over-year basis, partially because prices dropped to such low levels at the onset of the pandemic. But they also rose 0.6% between February and March—their largest monthly gain since August 2012. Experts, including Federal Reserve chair Jerome Powell and Biden Administration economists, have repeatedly said they expect a short-term bump in inflation as the economy recovers. They’ve emphasized that they expect this spike to be transitory and abate after conditions return to normal.
Consumers might not share that attitude: in a recent poll by CivicScience, 87% of American adults said they were “very” or “somewhat” concerned about rising costs of household expenses. And some are changing their spending habits already, with 27% of people reporting that they had been buying less because prices are higher.
Threat of dangerous inflation or no, those consumers are right about one thing. The pandemic has already had a major impact on prices—and it’s not all about stimulus money. Supply chain disruptions, changes to pre-pandemic supply and demand patterns and businesses eager to capitalize on the recovery boom all have the potential to drive prices up, and the shift is already happening.
Here are seven things you can expect to pay more for as the economy recovers—plus three things that will cost you less.
Wine, beer and liquor
Alcohol prices—including wine, beer and spirits—rose 2% in the year ended February 2021, according to data from the U.S. Bureau of Economic Analysis. Restaurant sales of alcohol plummeted during the pandemic, but online sales soared. A January report from Silicon Valley Bank predicted that wine sales and consumption will continue their upward trend in 2021 as the economy reopens, but noted the boost “may not be sustainable” after 2022.
A used car
A combination of pandemic-driven changes on the consumer front—moves to the suburbs, working from home, stimulus checks and excess savings—and a shortage of new cars thanks to supply chain issues and pandemic production slowdowns have sent prices for pre-owned cars soaring. Wholesale used car prices jumped an eye-watering 26% in March on a year-over-year basis, according to Cox Automotive.
Tampons, diapers and toilet paper
Consumer giant Procter & Gamble announced last week that it plans to hike prices on a variety of products in its baby care, feminine care and adult incontinence products this fall because of rising commodity costs. Mainstream baby care brands Luvs and Pampers are manufactured by Procter & Gamble, as are feminine care brands Always and Tampax.
P&G followed rival Kimberly-Clark, which has said it will hike its own prices in June for the same reason. Kimberly-Clark makes Huggies, Pull-Ups, Cottonelle and Scott toilet paper.
Home gardening supplies
Revamping your yard this year could be a little more costly than in years past thanks to a huge boom in home gardening during the pandemic. A survey conducted by the Freedonia Group in August found that 26% of adults had taken up food gardening during the pandemic—a trend that has also created shortages of certain types of seeds, NPR reported.
The price of seeds, flowers and potted plants surged more than 10.5% between February 2020 and February 2021, according to Bureau of Economic Analysis data.
Your next DIY construction project
Lumber prices are soaring this spring and have nearly tripled since early 2020. That’s thanks in part to a home-building surge in the United States: 1.7 million new housing units were built in March alone—the highest monthly total since 2006. It’s also due to delays in a supply chain now stretched to the breaking point by both increased consumer demand and a pine beetle infestation in Canadian forests.
But prices might not stay this high for much longer: “Even though we expect lumber demand to hold up well for some time, we still think that a rebound in supply will lead to a sharp fall in the price of U.S. lumber over the next eighteen months,” Capital Economics analyst Samuel Burman wrote in a note reported by Bloomberg.
A new refrigerator
According to the Bureau of Economic analysis, major household appliance prices rose more than 12% in the year ended February 2021. That’s again thanks to a surge in demand—consumers are spending more time at home and either upgrading their existing appliances or replacing them as they break—and supply shortages caused by factory shutdowns in the early days of the pandemic.
As the pandemic upends routines, demand for homes is also skyrocketing. Freddie Mac estimated this month that the housing shortage at the end of 2020 had risen to 3.8 million units, up from 2.5 million units in 2018. The National Association of Realtors recently said that the median price of an existing home was up 17.2% on an annual basis to $329,100 in March. Properties were only on the market for about 18 days in March before they were sold, NAR reported—a historic low.
A new wardrobe
Clothing and shoe prices went down 4.6% between February 2020 and February 2021, according to the BEA, as demand plummeted and consumers turned to work-from-home-friendly loungewear. But that lull might be over soon, especially as retailers look ahead to the reopening boom.
“Obviously, COVID-related stay-at-home mandates impacted customer buying behavior,” Urban Outfitters CEO Richard Hayne said last month. “We believe as vaccines become more widely distributed, new COVID cases continue to fall and government restrictions begin to loosen…apparel demand will accelerate.”
Interest rates are still at rock bottom and likely to remain there—at least for now. That means it’s a great time to borrow, especially if you have good credit.
Electronics and computer equipment
Prices for TVs and other electronics have been falling for years, and the pandemic was no exception. The price of audio-visual equipment went down 3.8% during the year ended February 2021, according to the BEA, while computer software prices dropped almost 8%. The price of calculators and other information processing equipment plummeted more than 16%.
(Sources: From Forbes and Fox Business)