Mainers dig deeper to pay for goods and services as inflation rises - Press Herald

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Tom Andrews of South Portland noticed he was digging a little deeper into his pockets on a recent trip to Home Depot, and he also recognized that it wasn’t an isolated phenomenon.

“That’s something that seems to be happening everywhere,” Andrews said, chalking up much of the inflation he’s spotted to pent-up demand from more than a year of pandemic-induced isolation.

Andrews said he recently tackled a simple project to loft his children’s beds. His supply list wasn’t expansive – five two-by-fours, eight brackets and two boxes of screws.

The tab? About $130, most of it for the lumber, a category in which prices have soared over the past year.

Consumer prices in New England rose by an average of 5 percent from June 2020 to June 2021, according to the U.S. Bureau of Labor Statistics. That’s three times the average annual U.S. inflation rate of about 1.7 percent over the previous decade, but lower than the U.S. inflation rate of 6.1 percent over the 12 months ending June 30 of this year.

Price increases have varied widely, from a 40 percent increase in the cost of gasoline to a 1.9 percent hike in the price of food, although that last number is expected to increase in the fall, as farmers face higher costs for labor to bring in crops and recent increases in seafood prices are factored in.

Analysts have attributed the recent consumer price increases to labor shortages, global supply chain disruptions affecting a variety of manufacturing materials and components, and trillions of dollars in coronavirus pandemic recovery funds that are being pumped into the U.S. economy.

Mackenzie Bowe of Sebago said she hasn’t noticed a run-up in gasoline prices – which are up 40 percent over the past year, according to the Bureau of Labor Statistics. But Bowe said she hasn’t paid as much attention to the price hike because she and her husband just bought a plug-in hybrid SUV, significantly cutting their gasoline bill.

Still, she has seen prices run up for renovations the couple are doing on their Sebago wedding venue, Autumn Lane.

“We’re definitely seeing the price rise,” Bowe said.

The couple have been hiking their price as well, but because they are currently booking weddings two years ahead of time, the price increase applies to their bookings for 2023. Bowe said caterers for weddings at their venue report that their costs are rising and, in turn, they’ve also had to raise prices.

“I kind of feel like it’s all around,” she said.

Mackenzie Bowe of Sebago removes the gas nozzle after filling up her hybrid vehicle on Wednesday at ScrubaDub in South Portland, where a gallon of regular gas cost $3.06. Gas prices increased by about 40 percent in New England over the past year. Ben McCanna/Staff Photographer

ECHOES OF ‘STAGFLATION’

That vicious cycle – sharp increases in costs that translate into a spike in consumer prices – had seemed like a relic of history, confined to a particularly nasty period of “stagflation” – rapid price increases combined with a flat economy – in the 1970s.

The economy is growing as it bounces back from the pandemic, so perhaps a repeat of stagflation isn’t in the cards now, but prices are definitely climbing.

The reasons for the increases vary by industry. For farmers, a tight labor market, increased transportation costs and higher prices for packaging materials are all contributing to higher prices, said Christine Cummings, executive director of the Maine Grocers and Food Producers Association.

Cummings said food producers in particular think there are some factors that could ease the upward pressure on prices as soon as next month. For instance, she said, the expiration of a federal boost to unemployment payments could bring more workers back and ease wage pressures, while the ebbing of the tourist season could lead to a decrease in demand.

On the other hand, colleges and schools are expected to reopen to in-person learning in the fall, and that means cafeterias will be open, increasing demand for local food producers and suppliers, she said.

Still, Cummings said, even a slight decline in demand and an increase in available workers could help heal supply chains that were disrupted by the pandemic, helping food producers and grocers to bank on more reliable deliveries.

“Once that demand sort of eases off, we might see a rebound of the supply chain,” she said, before adding a note of caution that businesses were disrupted by the pandemic in ways that were unimaginable just two years ago.

“What that (rebound) looks like is sort of unknown as this point,” Cummings said.

Keith Roy of Falmouth unloads bags of concrete mix onto a cart to return to Home Depot in South Portland on Wednesday. Roy, who works in the trades, said some clients have decided against projects due to the high cost of materials. Ben McCanna/Staff Photographer

THE PRICE OF UNCERTAINTY

General retailers can also point to business factors that have been altered by the pandemic, said Curtis Picard, president and chief executive of the Retail Association of Maine.

Picard said he remembers when inflation was a constant in the 1970s and early ’80s.

It got so bad that in 1971, then-President Richard Nixon imposed a 90-day freeze on wage and price increases, a step the country had not taken since World War II. And his successor, President Gerald Ford, stared down the problem in a nationwide address while wearing a “WIN” button, for “whip inflation now.”

Such slogans didn’t seem to have a direct impact, but inflation has been generally tame since the ’80s. A resurgence of rising costs and prices represents a headache that retailers don’t need after a year of shutdowns, strict store occupancy limits and intermittent shortages of some products, Picard said.

“Price increases are passed along or it’s bare shelves,” Picard said, and retailers face a complex calculation with the key holiday shopping season looming.

Picard said last year’s holiday shopping season ended up fairly well for retailers, probably because of pent-up demand earlier in the year, even though the pandemic was peaking. But all bets are off for this year, he said, pointing out supply chain disruptions, labor shortages and a reenergized COVID-19 with the delta variant.

Retailers have to balance paying more for products against the extent to which customers will be able to stomach those price increases being passed along, Picard said.

It all creates a lot of uncertainty for a variety of businesses.

Keith Roy, a contractor in Falmouth, said he had to buy bags of concrete at Home Depot for a customer’s hot tube project because his normal contractor couldn’t deliver, due in part to supply and labor issues.

That added time and cost to the job, he said, because he and workers had to mix and pour the concrete by hand.

“Everybody is just getting squeezed by higher prices” and the difficulty of hiring workers, he said.

Olin Charette of Westbrook returns his shopping cart on Wednesday at Home Depot in South Portland. Charette said he has noticed a steady uptick in prices over the past year. Ben McCanna/Staff Photographer

Roy said customers have pressured him over the time it will take to do the work and, for a small handful, the cost of materials has led them to back out after they received an estimate.

“It’s pricing people right out of the market,” he said.

A GLOBAL DISRUPTION

James Breece, an associate professor of economics at the University of Maine, said some reasons for the price increases are easy to spot and may be transitory. He said Americans are eager to return to a “normal” life after a year of lockdowns and working from home, and that is fueling a return to travel and other activities in which demand was bottled up for more than a year. Stimulus funds are also a factor for those who put the money aside for the summer, he said.

But an imbalance in the labor market, with some workers unwilling or unable to return to work, has raised labor costs, he said, and the pandemic was a shock to international markets. And, Breece said, while America seems to have a tenuous sense of control of the pandemic, many countries in Asia and Africa haven’t been able to distribute vaccines and take other measures to slow the spread of the deadly disease.

New cars are an example, he said. Asian suppliers of microchips essential to operating new vehicles found new customers after American manufacturers cut back on purchases as they reined in production and reorganized factories to try to control the spread of COVID-19 among workers.

“We depend a lot on Malaysia for computer chips, and that production is all disrupted,” Breece said.

Meanwhile, some companies, such as Toyota and Tesla, stockpiled chips and now have all they need and are able to sell their cars quickly, he said.

Normally, Breece and other economists would be able to confidently predict whether the inflation of the past year will continue or abate. But, Breece said, as with most things post-pandemic, there are too many wild cards to consider to make a prediction with any sense of surety.

He said the U.S. labor market will continue to shape wages and costs for manufacturers, and globalization – usually a check on rising prices – has been disrupted by the trade rift between the United States and China.

Those tensions began under the Trump administration, Breece said, but it seems to be continuing under President Biden. That may force some other Asian countries to “take sides,” he said, and choose between strengthening trade ties with China or the U.S.

That will act as a further check on globalization, he said.

Many experts, including those on the Federal Reserve Board, which monitors risks to the U.S. financial system, had expected that inflation would be transitory as part of the shift between the pandemic and post-pandemic world, Breece said.

But now they, and he, are thinking that it will be a bit longer than the short-term blip most experts initially predicted.

“It will be around for us longer than people initially thought,” he said.

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