“People are still out there trying to increase prices at rates higher than pre-Covid levels,” says Richmond Fed President Thomas Barkin, who votes on monetary policy this year. He told reporters earlier this month that he will be watching business and consumer behavior carefully in the first quarter to see how they react to price hikes.
Alfonso Wright, the co-founder of Brooklyn Tea, says he would rather not raise prices on his customers. But his costs for items such as some Chinese teas have doubled while agave syrup is up about 30% over two years.
“In February we are going to raise some prices for the first time in five years,” says Wright.
In his view, inflation is far from over. Wright sees few barriers to the cost of rent or equipment repairs moving higher.
Wage growth, however, is one area that firms are beginning to see some reprieve. John Waldmann, founder and chief executive officer of the small business scheduling and payroll software company Homebase, says wage rates held steady in its database of more than 100,000 firms in December after rising 17% in the two years ending in 2023.
That’s just a brick on the road to price stability, but it’s an essential one that Fed officials have been looking for. “Things are starting to settle down,” Waldmann says. “The labor market is returning to normal.”
Judging when to cut rates as the economy slowly returns to stable prices is tricky, says Julia Coronado, founder of MacroPolicy Perspectives LLC. Fed officials may have to cut before that condition is in hand, or risk damaging the economy.
Rates may have to stay higher as officials wait for price nostalgia to fade, she says, “but they don’t need to be where they are.”
This article was provided by Bloomberg News.