Voting Our Dollars

Kyle McIntosh

THE BUREAU OF LABOR Statistics reported last week that consumer prices in August were up 5.3% from a year earlier. This means that, on average, we’re paying $105 for a basket of goods and services that cost us $100 a year ago. Investors and analysts are worried that higher inflation may be here to stay.

My contention: Inflation will prove to be temporary and the Federal Reserve won’t have to increase interest rates to slow consumer prices. In making this assessment, I’m focused on American consumerism and the fact that we’re bargain hunters at heart. We’ve accepted upticks in highly valued and necessary items over the past year. But as deal seekers, I can’t see us accepting steep price hikes over the long haul.

Let’s start with fast food. From June to August, fast food prices increased at an annualized rate of 9.7%, as restaurants passed along the higher cost of labor and ingredients to their customers. While my family loves its Chipotle, we’ll certainly dial back our visits if burrito bowl prices continue to spike. Another alternative is we’d keep up the same number of visits but buy smaller quantities—something we should already be doing for health purposes. If others make similar changes to their behavior, fast food restaurants will see that pushing up prices will ultimately lead to sales declines, and that should prompt them to slow price increases.

Another recent driver of inflation has been the cost of automobiles. August’s vehicle prices were 32% above those seen a year earlier. For folks who really need a car, I can see the rationale in paying up. But the rest of us will be inclined to delay making car purchases until competitive pricing returns. Dealers have conditioned us to expect attractive offers. Once supply chains are back on track, I expect dealers will return to competing on price with “manager specials” and “employee pricing.”

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