WASHINGTON – Inflation is at a 40-year high but isn’t hitting all consumers as hard as top-line numbers might suggest, National Retail Federation Chief Economist Jack Kleinhenz said today. Nonetheless, consumer worries about rising prices could become self-fulfilling if workers demand higher wages to compensate and will play a role in the Federal Reserve’s efforts to bring inflation under control.

“After decades of relatively low levels, inflation is on everyone’s mind and has been making consumers and businesses miserable as prices have picked up dramatically over the past year,” Kleinhenz said. “However you measure it, inflation has become a powerful force and plays a key role in the nation’s economic outlook.”

“While actual price gains are expected to slow down in the coming months as they lap relatively high readings from the year before, the Fed is concerned about the risk of an unwanted jump in inflation expectations,” Kleinhenz said. “If consumers expect rampant inflation to continue, the possibility of a wage-price spiral could be unleashed as they demand to be paid more. In that scenario, the Fed would need to be even more aggressive with its rate hikes – a move that might stop inflation but at the risk of slowing the economy to the point of causing a recession.”

Kleinhenz’s remarks came in the March issue of NRF’s Monthly Economic Review, which cited the 7.5 percent year-over-year increase in inflation as measured by the Consumer Price Index in January along with the core Personal Consumption Expenditures Price Index, which is the Fed’s preferred measure of inflation, rising 5.2 percent.

“Headline inflation numbers may mask what is being faced by different consumers since spending patterns vary widely and lead to significantly different inflation experiences,” Kleinhenz said. “What a person buys can have a tremendous effect on how severely the pain of inflation is felt.”

Older households, for example, spend more on health and medical services than younger households, which spend more on education and communications like technology or TV streaming services. In addition, some spending that drives inflation consists of infrequent big-ticket purchases like a car (up 12 percent for new vehicles or 41 percent for used vehicles in January) or a new home.

Consumers expect inflation to grow 5.8 percent over the next year – less than in 2021 but still well above pre-pandemic levels – according to the latest Survey of Consumer Expectations from the Federal Reserve Bank of New York. But high rates are not expected to be long-term, with the survey showing consumers expect a relatively normal 3.5 percent over the next three years.

About NRF
The National Retail Federation, the world’s largest retail trade association, passionately advocates for the people, brands, policies and ideas that help retail thrive. From its headquarters in Washington, D.C., NRF empowers the industry that powers the economy. Retail is the nation’s largest private-sector employer, contributing $3.9 trillion to annual GDP and supporting one in four U.S. jobs – 52 million working Americans. For over a century, NRF has been a voice for every retailer and every retail job, educating, inspiring and communicating the powerful impact retail has on local communities and global economies.