MARY LOUISE KELLY, HOST:
More Americans are eating at restaurants, getting our hair cut, going to ball games as fear of the pandemic slowly fades. But the price of that renewed confidence is, well, higher prices. Last month, prices jumped at their sharpest rate in nearly nine years, partly as a result of increased demand. And fear of inflation has rattled financial markets in recent months. We're going to talk this through with NPR's Scott Horsley.
Hi, Scott.
SCOTT HORSLEY, BYLINE: Hi, Mary Louise.
KELLY: So I do want to note inflation over the last 12 months has been measured at more than 2.5%. What is driving this increase now?
HORSLEY: There's a number of factors. Remember; prices fell sharply a year ago when the pandemic took hold in the U.S., so some of the big increase last month was just making up for that. But we are seeing increased demand. A lot of people got those $1,400 relief payments last month. And as people get vaccinated, they're feeling more comfortable doing things they haven't done in a while, like taking a road trip, for example. Gasoline prices were a big driver of last month's price hike. And we also saw higher prices for tickets to sporting events and airfares and hotel rooms. Jan Freitag, who tracks hotels for the CoStar Group, says guests are filling almost three times as many hotel rooms now as they were a year ago in the early days of the pandemic.
JAN FREITAG: I think two shots plus two weeks makes for a healthy travel demand, and we're seeing more people on planes, more people in hotels and, therefore, higher occupancy.
HORSLEY: And hotel rooms are still cheap compared to what they were before the pandemic, but room rates are going up. They rose about 4.5% last month. And hotels also hired about 40,000 more workers last month to keep pace with that growing demand.
KELLY: So it sounds like that's - it's all good news for hotels and other businesses.
HORSLEY: Businesses are certainly happy to have more customers, more orders after what's been a really tough year for a lot of them, but the rebound does come with some challenges. Supply chains are stretched thin. We've seen shortages of everything from lumber and steel to computer chips, and those shortages are also contributing to the rise in prices. Now, the Federal Reserve says they're not overly worried about inflation. Fed Chairman Jerome Powell expects before too long, supply will catch up with demand, so he doesn't think we're going to see prices just keep spiraling upwards.
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JEROME POWELL: The nature of a bottleneck is that it will be resolved, that the supply side, if you will, will adapt and that, therefore, whatever costs people have to bear in prices because supplies are temporarily tight as the economy reopens, those won't be repeated next year.
HORSLEY: The Fed's projecting inflation to be about 2.4% this year, but by next year, it's expected to settle back to about 2%, which is the central bank's long-range target.
KELLY: Scott, the word expected seems to be doing a lot of work there. What if that's wrong? What if inflation does keep climbing?
HORSLEY: Yeah, then the Fed would have to raise interest rates to put the brake on prices, and that's bitter medicine because it also puts the brake on job growth. So for now, the Fed is in wait-and-see mode. What they're really watching for is any change in people's expectations about inflation. We've had decades now to get used to pretty low inflation. If that changes and people start to think prices are going to just keep going up, then that can become a hard cycle to break.
KELLY: That is NPR's Scott Horsley.
Thank you, Scott.
HORSLEY: You're welcome.
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