The Washington Post - USA (2021-11-11)

A18 EZ RE THE WASHINGTON POST.THURSDAY, NOVEMBER 11 , 2021

BY WILL ENGLUND

A main driver of the wave of
inflation besetting the country is
the price of energy — all forms of
energy.
Gasoline, diesel fuel, heating
oil, natural gas, electricity and
coal all cost more — in some cases
much more — than they did a
year ago. Or a month ago. The
national average for gasoline is
$3. 40 a gallon, up by more than a
dollar from last November and
the priciest it has been in seven
years.
The explanation is not compli-
cated. Demand for energy — from
motorists, truckers, airlines,
shipping lines, manufacturers —
rebounded from the pandemic
slump much more quickly than
production has been able to re-
cover.
The good news for consumers
is that the worst of the surge may
have already happened. The bad
news is that any factors that
could exert serious downward
pressure on prices are nowhere
in sight. And the winter heating
season is just getting started.
Also, the increased cost of
energy spreads throughout the
economy, so anything that has to
be manufactured or shipped be-

comes more expensive. From one perspective, the high prices are a sign the economy is getting back into full gear. “Biden’s infrastructure bill is a strong oil-demand signal for the future and the lifting of U.S. travel restrictions is also sup- porting oil prices,” Louise Dick- son, an analyst with the Norwe- gian firm Rystad Energy, said in a note. The $1.2 trillion infrastructure bill, awaiting President Biden’s signature, would not only pour a lot of money into the economy, but a large part of it is also directed at energy infrastructure, which in the long run could help bring prices down. But meanwhile, the pinch will hurt Americans in varying ways. If this winter’s weather conforms to seasonal averages, the Energy Information Administration pre- dicted last month, home heating oil bills will be up 39 percent over last year. Natural gas bills should be 26 percent higher than a year ago, and electricity 6 percent. But the pain will vary from region to region, with the increase in natural gas prices highest in the Midwest, and that of electricity highest in the Northeast. And a cold winter would hike those bills considerably higher. Biden has called on the OPEC oil-producing nations and Russia to step up production in the face of the global price rise. China, the world’s largest oil importer, has, too. But Moscow and OPEC have recommitted to the course they

plotted this summer to permit only gradual increases in supply. At the same time, production in Nigeria and Angola has fallen below targeted levels. Analysts nevertheless point to signs that acute upward pressure on prices may be fading. In the United States, natural gas production this week is up more than 3 percent from Octo-

ber, and even as stockpiles start to build, forecasters predict rela- tively mild weather for much of the country in December. Futures prices for natural gas declined on Wednesday. Oil refineries on the Gulf Coast have restarted after being shut down in August by Hurricane Ida. That recovery was “earlier than expected,” Farzin Mou, vice

president of Enverus Intelligence Research, said in a note. That could ease pressure on gasoline prices, but the underlying cost of crude oil should remain high, in part because of the recovery in demand for jet fuel and diesel fuel. A barrel of West Texas Inter- mediate is selling for about $80, double what it cost a year ago. In a separate note from En-

verus looking further ahead, analyst Jen Snyder said, “We expect oil and gas production growth to outpace demand growth in 2022 and 2023 — a return to normal weather conditions in key mar- kets and a recovery in upstream activity levels this year will restore some balance.” (Upstream activity refers to the extraction of petroleum from wells, as op- posed to refining or distribution.) Dickson, at Rystad Energy, also expects a growth in the supply of oil next year. The monthly OPEC and Rus- sian production increases, though gradual, will begin to add up, she wrote, and the continuing high price of oil should encour- age U.S. shale production to ex- perience a growth spurt. Also, she said, if a new Iran nuclear deal is worked out, as seems possible, that could lead to the “re-emergence of Iranian bar- rels” on the world market. The price of coal from central Appalachia has increased about 60 percent over the past year, according to the EIA, with some- what smaller increases in other regions. Coal accounts for about 20 percent of the electricity gen- erated in the United States, EIA figures show. The global price is nearly triple what it was a year ago, but it is declining after a sharp spike in October, when shortages of natural gas and wind power struck Europe and electric power companies there leaned heavily on coal. [email protected]

At root of inflation are rising costs to power cars, heat homes and cook food

JENNY SATHNGAM/BLOOMBERG NEWS A customer pumps gas in Honolulu. The national average for gasoline is $3. 40 a gallon, up by more than a dollar from last November and the most expensive it has been in seven years.

High energy prices signal economic recovery, but winter bills may be steep

ing to senior administration officials. Indeed, signs of a resurgent economy continue to appear, en- couraging policymakers, economists and workers alike. The na- tion added 531, 000 jobs in Octo- ber, and the Labor Department has revised the disappointing jobs reports from August and Septem- ber to show more significant gains. The unemployment rate has ticked down to 4.6 percent. Coronavirus cases have dropped in recent weeks, helping restore confidence for businesses and consumers. Major U.S. stock in- dexes have also soared to record levels. Given those data points, Feder- al Reserve officials are starting to unwind the pandemic-era stimulus by scaling back, or “tapering,” the central bank’s vast asset-pur- chase program each month. The Fed has said it could tweak the pace of that effort depending on how the economy progresses. But Powell declined to explain what those criteria would be during a news conference last week. Swonk said it’s likely that such broad-based price increases will continue in the months to come. That could spur the Fed to draw down its asset purchases more quickly. “This is going to get worse before it gets better,” she said. [email protected] [email protected] [email protected]

David Lynch contributed to this report.

Still, others on the left argue that the stimulus efforts and ex- panded government aid were es- sential in carrying vulnerable households through the pandemic. Officials in the Biden administration and Democratic lawmak- ers emphasized earlier in the pandemic that the risks of doing too little outweighed the risks of doing too much. Josh Bivens, an economist at the left-leaning Economic Policy Institute, said he thinks inflation would be lower today if the most recent coronavirus relief bill hadn’t passed. “But I also think we’d have created far fewer jobs over the past year, and people’s wages would be lower — their incomes would be lower.” Bivens added that the generous relief package gave workers the finan- cial cushion and leverage to nego- tiate higher earnings or switch to better jobs, setting the stage for a massive reassessment of work in America. Biden visited the Port of Balti- more on Wednesday to tout the administration’s effort to ease warped s upply chains, f ollowing a White House announcement Tuesday of a plan to expand the capacity of U.S. ports and inland waterways. Most o f the new activity involves $17 billion in ports funding included in the biparti- san infrastructure legislation that Congress approved last week. But the White House also plans within the next 45 days to award $243 million in new port and ma- rine i nfrastructure grants, accord-

increases from becoming more permanent. The central bank’s main tool for combating inflation is interest rates, which it can raise or lower depending on what’s hap- pening in the economy. Fed lead- ers have pledged not to raise rates until the labor market is more fully healed. However, the rise in household goods is eroding wage gains each month. Households feeling the strain now could increasingly begin to believe that inflation will stick around longer and change their spending behavior, which could make inflation a self-perpet- uating cycle, lasting longer. Republicans, meanwhile, argue that the Fed should be doing m ore now to combat inflation. They say the central bank risks being be- hind the curve if inflation turns out to be more persistent than Powell and others believe. Some Democrats, too, warned about overheating in the economy. Former Obama treasury sec- retary Lawrence H. Summers, for example, has long argued that sprawling stimulus efforts would be too much for the economy to handle and cause a boom in con- sumer demand before supply chains could keep up. “We’ve got a very, very strong economy on the demand side, a nd not a very strong economy on the supply side, and that’s risking an overheating,” Summers told Bloomberg TV earlier this month. “We are still not running policies that are consistent w ith t he reality of the economy.”

ingredient he needs to run his business, he’s a lso hard-pressed to find items at prices he can afford. Wings that used to cost $84 per case now cost $157. To-go contain- ers are in short supply, as are bottles used for storing liquor. Brisket that used to be $3. 75 a pound is now a dollar m ore, mean- ing that the 150,000 pounds of brisket Husbands sells each year would cost him an extra $150,000. Planning ahead has proved to be no match for the pandemic-era economy, with Husbands adding that prices can increase j ust over a weekend. “It’s insanity that prices can change on a truck when it’s being delivered to you,” Husbands said. Higher food prices are weigh- ing on families that, in some cases, haven’t sought handouts before, said Catherine D’Amato, w ho runs the Greater Boston Food Bank. During the height of the pandemic, many of the people who came for help had been laid off or had their lives upended by the coronavirus. Now, even as parts of the economy show renewed strength, rising costs at the grocery store are forcing people into painful choices. “Everything is tightening,” said D’Amato, whose food bank is still feeding far more people than before the pandemic. “A re you going to use your resources to eat or pay for medicine? To buy clothes or eat? Are you going to pay rent or eat?” Powell has pledged that the Fed will d o what it can to prevent p rice

Grade A eggs rose from $1.41 to $1.82, a 29 percent increase. A pound of chuck roast rose 29 percent, from $5.75 to $7.40. A gallon of milk rose 8 percent, from $3. to $3.66. However, many other items, such a s cheddar and A meri- can cheese, and produce such as tomatoes and strawberries, got cheaper over the same period. Rent continues t o inch upward, with costs rising 0.4 percent in October compared with Septem- ber, following a months-long upward t rend. Home prices also continue to grow, which some economists say has the effect of driving rent higher o ver time. T he median sales price of single-family exist- ing homes climbed 16 percent from one year ago, to $363,700, according to data released Wednesday by the National Asso- ciation of Realtors. “The Fed has to be laser f ocused on the hardest-hit and low-wage households,” said Diane Swonk, chief economist at Grant Thorn- ton. “Wages and salaries have gone up for leisure and h ospitality workers... but there’s no way they can absorb the commute costs and accelerating rents. The only thing that’s cheap is turkey, in terms of proteins. So go a head a nd stick with that turkey for Thanks- giving.” Households and businesses have been hamstrung by inflation pressures for months. Andy Husbands, 52, owns five Smoke Shop BBQ restaurants in Boston. Not only is Husbands scrambling to get hold of every

The data underscores how in-
flation has emerged as a contro-
versial political and economic is-
sue during the pandemic era. For
years, inflation remained tamely
below the Federal Reserve’s 2 per-
cent annual target and off politi-
cians’ radar. But the clash of sup-
ply chain backlogs, labor shortag-
es and ongoing uncertainty amid
a public health crisis has turned
inflation into a crucial test for
policymakers and economists —
and it’s unclear when that will
change.
“This was the first number that
very clearly was not ‘temporary
shortage’ driven,” said Adam Pos-
en, president of the Peterson Insti-
tute for International Economics,
suggesting that the pandemic-era
supply shortages are no longer the
overwhelming force. “There were
things that are no longer short,
coming back up in price. Services
that by definition aren’t really
short, coming up in price.”
The latest snapshot of higher
prices comes at a tense time for
the Biden administration, as it
tries to corral support for a $ 2 tril-
lion social spending package. On
Wednesday m orning, a key Demo-
crat needed for the bill, Sen. Joe
Manchin III (W.Va.), raised new
concerns about inflation, b uilding
on his earlier warnings about
more government spending.
President Biden tried to as-
suage these fears Wednesday,
highlighting good news in the
economy — including lower w eek-
ly claims for jobless benefits —
while also suggesting his eco-
nomic agenda, including the
package Congress recently passed
to boost infrastructure spending,
will bring down prices.
“Inflation hurts Americans’
pocketbooks, and reversing this
trend is a top priority for me,”
Biden said in a statement.
But officials a t the W hite House
and the Fed have for months as-
serted inflation will be a tempo-
rary, or “transitory,” feature of the
economy. They argue that the
price increases are driven by sup-
ply chain backlogs that have con-
strained auto manufacturing,
housing construction and food
production alike. Inflation won’t
come down to more sustainable
levels, they argue, until those sup-
ply chains have time to clear.
It’s unclear when that will hap-
pen, especially given how vulner-
able the economy remains to the
coronavirus pandemic and its
waves, which add unpredictable
pressure to the supply chain over-
seas and domestically. At a news
conference last week, Fed Chair
Jerome H. Powell said “it is very
difficult to predict the persistence
of supply constraints or their ef-
fects on inflation. Global supply
chains are complex; they will re-
turn to normal function, but the
timing of that is highly uncertain.”
Some economists are also con-
cerned that while wages are
climbing, they aren’t growing
enough to compensate for the ris-
ing cost of living, at least in the
short term.
The prices of many items that
U.S. households rely on each day
are rising sharply, BLS data
shows. In the past 12 months, the
national average price of a dozen

INFLATION FROM A

Price hikes hit hard at the gas pump and the grocery store

SPENCER PLATT/GETTY IMAGES A shopper in Manhattan this month picks up produce, some of which bucked the trend and got cheaper in October compared with last year. But food prices increased broadly, with the cost of a dozen grade A eggs and a pound of chuck roast both rising 29 percent. The price of a gallon of milk was up 8 percent, from $3. 38 to $3.66.

The Washington Post - USA (2021-11-11)

Get our desktop app

Company

Features

Documentation

Resources