How inflation and tangled supply lines are gripping economy

7 months ago

WASHINGTON -- Since the pandemic erupted two years ago, Forest Ramsey and his wife, Kelly, have held the line on prices at their gourmet chocolate shop in Louisville, Kentucky. Now, they're about to throw in the towel.

In the past year, the costs of ingredients for their business, Art Eatables, have surged between 10% and 50%. The Ramseys are paying their employees 30% more than they did before the pandemic.

And in the face of supply shortages, their packaging costs are up. They've begun using 12-piece trays in their eight-piece chocolate boxes because they can no longer get any eight-piece trays.

So having just tried to survive for the past two years, the Ramseys, who own three retail outlets and sell custom chocolates to about 25 bourbon distilleries, have reached an unpleasant decision: They're going to raise their customer prices 10% to 30%.

“We’ve got to adjust this — we can’t afford to keep taking the hits anymore,” Forest Ramsey said.

The struggles of Art Eatables illustrate how inflation and tangled supply chains have seeped into nearly every nook of the economy, forcing consumers and businesses to make painful decisions that many of them have never had to contemplate before. With the government reporting Thursday that consumer inflation reached 7.5% over the past year — a 40-year high — the acceleration of prices is leaving few unscathed.

Some of the supply chain snarls that have magnified inflation since the pandemic recession may begin to ease in the coming months. If so, inflation would likely moderate somewhat.

Yet the key trends that have sent prices soaring — higher wages, parts shortages, rent increases, robust consumer spending — won't likely fade anytime soon. And it's unclear when, or how much, inflation might actually slow.

Increased pay, though good for workers, has led many other retail and restaurant chains, from Starbucks to Amazon to Chipotle, to charge customers more. When Amazon announced last week that it was raising the price of its annual Prime memberships, from $119 to $139, it pointed to its increased labor and shipping costs.

And an acceleration of apartments rents, many economists say, will likely help keep inflation up at least through the end of this year. Rising prices are also broadening from pandemic-battered industries like autos to wider categories of goods and services, from electricity to clothing to airfares. That suggests that high inflation will outlast COVID-19.

Neil Dutta, an economist at Renaissance Macro, noted that even if you exclude from the government’s consumer price index the costs of food, energy, housing and used cars — some of the fastest-rising categories during the pandemic — prices still rose a steep 0.7% from December to January. That's above even the 0.6% increase for overall consumer prices, a stark illustration of how widespread price increases have beco...

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