By Natalie DeCoste

America’s fiscal and monetary policy is dangerously close to leading this country down a road of negative economic effects by over-stimulating the economy.

Data from the U.S. Bureau of Economic Analysis shows that the prices for many consumer goods are on the uptick when it comes to the personal consumption expenditure price index (PCEPI). This index tracks the change in prices of goods and services purchased by consumers throughout the economy.

“Stocks recently hit record highs; bond prices were at record highs not that long ago; commodity prices are soaring with lumber, copper, iron ore, and steel prices recently hitting record highs; median existing home prices are at a record high; many flavors of cryptocurrency are trading at, or near, record highs,” wrote market analyst Patrick J. O’Hare about the current situation.

Here are four things that consumers are likely to have to pay more for in the coming months.

Cars

Consumers looking to buy a car and hoping to save a few bucks should think again before looking for a used car. According to research firm J.D. Power, the average cost of a used car reached $25,463 in April, the first time the amount has risen above $25,000.

The lowest personal consumption expenditure value during 2020 was 72.8, but by March of 2021, the number had jumped to 91.1. This is a significant increase from the numbers a year prior and a far larger increase than new motor vehicles, which had only risen two points on the index.

The jump in the price of used cars is likely a reflection of increased demand for used vehicles as new vehicles become harder to find. The shortage in computer chips for new scars caused by supply chain issues, winter storms in Texas, and a fire at a major Japanese chip plant has delayed the production of many new vehicles.

Gasoline

Gasoline has seen a dramatic increase over the last few years, especially since the onset of the pandemic. In the first month of 2020, gasoline’s index number was at 77.93. It then hit a low in May of 2020 at 52.4. Now the number is back above its pre-pandemic levels, hitting 82.72 in March.

Data from the U.S. Bureau of Economic Analysis shows a nearly vertical line for the increase of price index of the good since the end of 2020. The Bureau of Labor Statistics says that its index of gasoline prices has jumped 49.6% over the past 12 months.

Food and Beverage

The cost of food and beverages for consumption at home has been a focus throughout the pandemic. Due to supply chain issues and shutdowns at poultry and meatpacking plants, meat prices saw an increase during the pandemic, and consumers were faced with empty shelves.

At the start of the first quarter in 2020, food and beverage, in general, had a personal consumption expenditure value of 104.8, while meat and poultry was higher at 109.6. Both values hit a peak in June of 2020, with food and beverage coming in at 109.9 and meat and poultry hitting a hefty 122. The values did settle down slightly as the supply chain came back under control but remained higher and slightly on an upward trend.

Financial Services

The cost of financial services, which includes commercial banks and pension funds, is on a consistently upwards trend on the PCEI. At the start of 2020, the index number for financial services was 151.8. By March 2021, the index number was 157.7. The increase is not as large as gasoline but still suggests that consumers face a consistent cost increase for financial services. Between February and March of 2021, financial services appeared to experience the highest percent increase in its index value since 2000.

The increase is interesting because of the explosion of new retail investors as financial technology services like Robinhood become more widely available. However, this trend is primarily isolated to trading services. Despite a decrease in the cost of trading, this change has not translated to the rest of the financial industry.

What’s Behind the Increase

Each category of goods has contributing factors that are pushing price up. Still, one primary reason is the stimulus being injected into the economy by President Joe Biden and Fed Chief Jerome Powell. Biden signed a $1.9 trillion stimulus bill back in March and is currently asking for more than $4 trillion in additional measures. Meanwhile, Powell has the Federal Reserve setting short-term interest rates at essentially zero and buying $120 billion per month in Treasury and mortgage-related securities.

Opposition to their policies is even coming from President Biden’s side of the aisle, specifically from Larry Summers and William Dudley. Summers was Treasury Secretary under President Bill Clinton and ran the National Economic Council under President Barack Obama, and Dudley was the chief economist for Goldman Sachs and ran the New York Federal Reserve Bank from 2009 to 2018. Summers has called Biden’s efforts the “least responsible” macroeconomic policy in the forty years since the Reagan administration.

“If your bathtub isn’t full, you should turn the faucet on, but that doesn’t mean you should turn it on as hard as you can and as long as you can,” Summers said earlier this year.

Summers is concerned that the extra government spending will generate over-inflation.

“At 2.65%, the five-year breakeven inflation rate (what the market thinks the inflation rate will average over the next five years) is the highest it has been since 2006. Separately, the University of Michigan Consumer Sentiment Survey for May noted the expected year-ahead inflation rate of 4.6% is the highest ever for that survey,” said O’Hare.

Should rampant inflation occur, the Fed will have to remedy the increase in inflation by tightening monetary policy earlier than it would like, which could lead to stagflation or a recession.

“Tools can help tame inflation, yet they will also break other things in the process, as the policy tools of tightening typically do. The economy will turn softer as consumption slows, the unemployment rate will increase, and asset prices, namely stock prices for our purposes here, will be reined in. The extent to which they are will have much to do with how far they are allowed to run before the hammer hits the nail on the head,” said O’Hare about the tools the Fed will need to use to quell inflation.