Macroscope | Central bankers can no longer dismiss inflation concerns – price rises are everywhere
- China seems alert to the threat but the US Federal Reserve and other major central banks in the West need to show more concern about rising prices
- If consumers lose confidence in central banks’ ability to control inflation, they will seek higher wages and push prices even higher
Coca-Cola has said it will raise prices on its drinks in the United States. US consumers know that, broadly speaking, higher sticker prices are the real thing even if the Federal Reserve is still arguing that current inflationary pressures are transitory. The Fed needs to change tack or risk losing popular confidence. Other central banks will have to follow suit.
And if that makes US consumers feel like weeping, they might want to buy their disposable tissues now, as the makers of Kleenex, Kimberly-Clark Corp, have announced a number of price increases that look likely to be rolled out in late June.
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Fed policymakers will no doubt continue to suggest that such higher prices are transitory but US consumers are not stupid.
They know that price increases for consumer goods tend to stick and when Joe Sixpack, the archetypal American working man, sees that his pay cheque isn’t going as far as it used to, Fed reassurances about transitory inflationary pressure will fall on deaf blue-collar ears.
Fed officials clinging to the current narrative might want to think back a decade to a rather uncomfortable evening that former New York Federal Reserve president William Dudley then endured in the city that never sleeps, when addressing a town hall meeting in the working-class neighbourhood of Queens.
Certainly, no one in that audience was asleep in April 2011 and attendees bombarded Dudley with their concerns about increases in US food prices.
He sought to reassure those present by contextualising rising commodity prices within the broader economic situation, only to be asked politely: “When was the last time sir, that you went grocery shopping?”
