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Inflation May Be at Its Highest Rate Now — Here’s Why

Good news for consumers and retailers alike: Inflation is likely at its peak, a new report suggests.

As consumers switch from buying goods to buying services, inflation is poised to decline in the coming months, according to a report from S&P Global Market Intelligence.

The Consumer Price Index, or a measure of the change over time in the price for consumer goods or services, rose 5.4% in June, with footwear prices up 6.5%, according to the Bureau of Labor Statistics.

“Inflation is running hot as a variety of factors — pent-up demand and supply shortages, among others — have pressured prices for many goods, including used cars and trucks, apparel and electronics products,” the S&P report said. “But some of those pressures are starting to wane as the economic reopening is allowing consumers to spend more on services such as airfares, restaurants and cinemas, sectors of the economy that suffered during COVID-19 lockdowns.”

It’s clear that consumers are back and spending. They are refreshing wardrobes and prepping to send kids back to school, bolstered by stimulus money and general pent-up demand for goods. They are willing to spend full price at the moment, which will help retail margins, but that will contribute to inventory shortages if new merchandise isn’t received on a timely basis.

Ongoing global supply chain headaches, largely due to coronavirus restrictions and rising infection rates, are expected to further impact shipping and strain pricing and fulfillment in the near term.

For now, retailers are still raising prices. About 44% of retail businesses and 41% of manufacturers recently polled by 451 Research, which is a unit of S&P Global Market Intelligence, said their prices are increasing. Overall, the recent poll of 606 U.S. businesses across industries found that 33% are raising prices and 4% are reducing prices.

“As the economy continues to reopen, allowing consumers to spend their money on services, there will be less upward pressure on the price of goods, easing the inflationary bubbles that have appeared,” the S&P said.

Nevertheless, it’s not likely that the rate of inflation will fall back to 2% — the Federal Reserve’s target rate — anytime before 2022, according to S&P.

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