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SALT LAKE CITY — The duration of this period of increased inflation in Utah and across the nation is a hot topic among economists. And there does not seem to be a firm belief one way or the other: is it just a blip on the radar or a more permanent aspect of the U.S. economy?
It’s hard to say.
Kem C. Gardner Policy Institute Public Finance Senior Research Fellow, Phil Dean, believes it’s an even more complicated question when you try to figure out what is causing the spike in prices.
Dean says looking specifically at the categories seeing inflation helps identify some of the underlying causes.
“You look at hotel prices having gone up now that we’re traveling again, or you look at the lumber issue related to the pandemic, or microchips and used cars related to the pandemic,” Dean explains.
While the pandemic technically isn’t over, Dean thinks most of those issues will work themselves out. What’s more worrisome for him than the numbers is how people feel about them.
Much more than the monthly report of a 5% inflation rate, my biggest concern is do peoples’ inflation expectations change fundamentally. And, them changing their economic behavior based off of that,” said Dean.
Those economic behaviors include employees demanding higher pay, homebuyers trying harder to get into a new home. Both could lock in higher inflation.
Dean said the U.S. Federal Reserve has the power to help stave off inflation by raising interest rates, something Chairman Jerome Powell seems in no hurry to do.
Even if the Fed does move on interest rates or any other factor, Dean said it might not be the best thing for Utah.
“The Federal Reserve is going to be setting policy based on what’s best for the country as a whole,” Dean said. “We have a hot housing market here. If they were only looking at Utah and at mortgage rates, they might want to increase interest rates over time to moderate that or slow some of that down.
“But, they’re not just going to be looking just at the Utah economy, they’re going to be looking at the U.S. economy overall.”
Regardless, Dean said the Utah economy is strong and he expects it to stay that way. However, the housing crisis and labor shortage will continue to be a problem in the Beehive State which could extend inflation further.