Too much shopping – even at the beach
REHOBOTH BEACH, Del. – While riding his motorbike to his beach house last weekend, President Joe Biden could have looked out the window of his limo and seen for himself why he struggled to contain the inflation.
Along the Delaware Coastal Highway that leads to Rehoboth Beach are miles of shopping malls, outlets, restaurants, hotels, and gas stations. The advertised price of gasoline was approaching $5 a gallon. Holidaymakers had piled into the car parks of pubs and taquerias.
No one is happy that inflation is near a 40-year high, but it will be hard to bring prices down as long as people continue to spend eagerly.
While browsing the Polo Ralph Lauren outlet store, Nina Cooper was unhappy with her increased spending, but she was still looking for new outfits. The inflation wasn’t enough to deter the hospital worker, who was grateful that a seven-minute commute spared her pain at the gas pump.
“Everything is going up – look at these prices,” Copper said. “But you still have to live.”
Biden faces a tricky compromise as he tries to help fellow Democrats in the November election. He needs American consumers to pull back just enough for inflation to come down, but not so much that the economy risks plunging into a recession.
The president has floated the idea in recent speeches, noting that the pace of hiring has slowed and “we’re beginning a shift to steady growth” after a rapid recovery from the coronavirus-induced recession. That recovery that was fueled, in part, by its $1.9 trillion relief package.
Consumers represent the bulk of American economic activity, which means they direct much of what happens with their collective choices. Their role tends to be overlooked in political discourse, which typically reduces the economy to talk about jobs, factories and other forms of production. Biden went so far as to say that his policies to promote port modernization and domestic manufacturing will reduce costs by improving production, a long-term solution to an immediate problem that can be reduced, simply, to demand exceeding the offer.
Friday’s consumer price report is expected to show annual inflation slowing slightly to 8.2% in May from 8.3% in April. Economists polled by FactSet say the decline will largely be driven by spending other than food and energy, as Russia’s invasion of Ukraine has driven up prices in those categories worldwide.
Republicans are tapping into public impatience with inflation that remains consistently high, instead of falling as promised as the economy reopens after pandemic-related shutdowns.
Senate Republican Leader Mitch McConnell of Kentucky attacked rising electricity and gas prices, the result of an ideological choice by the Biden administration to move away from fossil fuels. The GOP’s solution is to pass policies that it says would increase energy supply.
“A few days ago, President Biden said soaring gas prices were just part of an ‘incredible transition’ that will make us ‘less dependent on fossil fuels,'” McConnell said. Tuesday in the Senate. “Have you heard that, working Americans? Democrats say your financial pain is the cost needed to make America more to the liking of the radical environmental left.
Part of the problem with inflation is that consumers haven’t drastically reduced their spending yet. AAA reported that average prices at the pump jumped 62% from a year ago. But the Department of Energy reported that gasoline consumption in the United States fell only 1.8% over the past year, which means that most consumers accept the financial burden imposed by inflation.
University of Michigan economist Betsey Stevenson, a former White House adviser to Obama, said it would help if Americans cut spending. This would reduce demand and allow supply to catch up, easing pressure on the Federal Reserve to reduce inflation through higher short-term interest rates.
“Fundamentally, the current problem is the opposite of stagflation – it’s steady inflation driven by an economy operating at or above its potential, with consumer demand exceeding the capacity of the economy,” Stevenson said. . “I hope people stop dipping into their savings and cut spending a bit – not enough to slow the economy, but enough to slow the rise in prices.”
Stevenson also acknowledged that gasoline prices in particular could be the source of broader discontent, so headline inflation could come down and do little to quell public concerns as long as consumer prices pump are high.
“Cars seem to be important to people’s sense of control and high gas prices for some might feel like losing your ability to just jump in your car and go where you want,” she said. declared.
Despite soaring prices, consumer spending grew faster than inflation in the first four months of this year. Consumers’ ability to maintain such robust spending will largely determine how the economy plays out over the next few months.
There were visible signs that Rehoboth Beach’s economy is booming.
Discount chain hotel rooms next to the busy freeway were charging $250 a night on weekends. There is a shortage of summer workers as retailers openly advertise jobs, a sign that prices may need to rise further to cover labor costs.
Tanger Factory Outlet Centers, which owns the outlets along the highway, reported to investors that sales were up 18.1% from pre-pandemic levels. Tangier CEO Stephen Yalof told investors on an earnings call last month that buyers had returned “even as consumers face higher gasoline prices and an inflationary environment” and that he is confident that in his outlet “retailers will be able to withstand and perform well” if a downturn occurs.
Carrie Lingo, a real estate agent who serves as chair of the board of directors for the Rehoboth Beach-Dewey Beach Chamber of Commerce, said she hasn’t seen much of an inflation-induced downturn yet. Their biggest obstacle is the absence of workers, not the prospect of declining sales.
Hiring usually swells during the summer with tourists and wages were already up last year. According to the Bureau of Labor Statistics, average weekly wages in surrounding Sussex County were 12% higher during last year’s summer peak than in 2020.
“Our visitation is up from last year, but there are supply shortages,” she said. “I think businesses are adapting well and often these prices are passed on to our consumers.”
AP Economics Writer Christopher Rugaber in Washington contributed to this report.
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