The main drivers of inflation have started to wane in recent months, but the cost of goods has remained stubbornly high.
Key Details
- Shipping costs and commodity prices have dropped, which should bring lower prices to consumers, but so far—that’s not the case.
- For the time being, consumer prices will likely stay elevated, partly because distributors have already locked in price agreements with freight and commodity suppliers.
- The consumer price index reached 6.5% in December as prices of goods like eggs and cereal jumped dramatically.
Why it’s news
In small areas of the market, consumers may see prices start to dip, but the overall market will remain high. Service industries like restaurants and retailers may soon need to raise prices even more to accommodate greater expenses on their end.
During the pandemic and related supply chain disruptions, inventory remained low in nearly every industry, resulting in high prices that have stuck around. But consumers aren’t willing to pay those same prices, and spending is starting to slow.
Costs for shipping are still higher than typical but lower than last year’s peak. In December, shipping via long-distance truck was up 4% from the year before but down 8% from March 2022. Container shipping, a $10,377 peak in September 2021, is down 80% to $2,079—an improvement, but still higher than before the pandemic.
Food and clothing costs for distributors have also declined, though prices are still higher than before the pandemic. However, these savings can’t be passed to the consumer as many companies are locked into long-term contracts with their suppliers. Typically, these contracts protect consumers and businesses from unpredictable price swings.
In addition to supplier costs remaining high, many industries are finding that labor has become more expensive. Service industries like restaurants and hotels are having particular difficulty hiring sufficient workers. Instead, they’re hiring fewer workers for higher wages.
However, higher wages mean higher consumer costs. For example, the airline industry is raising pilots’ wages amid a labor shortage. This will likely keep airline ticket prices high, even though prices have recently started to decline.