- What we need to see is inflation coming down
in a clear and convincing way.
- I think that bringing inflation down
should be our number one priority.
- [Narrator] The story of inflation is changing.
- A year ago, Wall Street,
a lot of policy makers in Washington
were hoping that the inflation uptick would be
what they called transitory.
- There was a decent amount of evidence
to support that view.
That it would be temporary or transitory.
- That it would come and go away.
Well, that's not what happened.
- [Narrator] To understand where inflation is spreading.
In the average American's household budget,
we look to the Labor Department's inflation metric,
the consumer price index.
We came away with some surprises and some lessons
to tell us how the story of inflation is changing.
The inflation we're currently experiencing
began as pandemic lockdown restrictions were lifted,
triggering a boom in demand.
- When inflation turned up in 2021,
it was a different kind of inflation
than what we're seeing right now.
There were really two facets to it.
One was we saw these idiosyncratic changes.
For instance, used car prices jumped up
in part because there were shortages of new cars.
- [Narrator] Supply chain bottlenecks and chip shortages
pushed up prices for goods like cars,
both new and old.
- And then the other thing that we saw
was prices for other goods jumping up.
During the pandemic, people binged on goods.
They couldn't go out to restaurants.
They couldn't go to hotels.
And so they order in Amazon
and the spending picked up on a lot of goods.
And then as the pandemic receded a little bit,
we had these supply shortages
for imported goods in particular.
So you saw things like furniture prices go up,
apparel prices, shoe prices.
Stuff that used to be really cheap
because we were importing it from low cost labor places
was all of a sudden popping up.
(light music)
- [Narrator] But the inflation we've seen recently in 2022
is more severe and more wide reaching.
- Now we're seeing prices for services,
like one of my favorite indicators is haircuts.
For 20 years, the price of a haircut
was going up between zero and 4%.
In this latest stage, they've gone up 5%
because the cost of labor is going up.
- [Narrator] Some of the most noticeable recent price hikes
have been at the grocery store.
13% of the average American's household budget goes to food.
And since last April, household food prices
are up almost 11%.
- Grocery prices were pretty tame actually last year.
And what we've seen this year
is increases at double digit levels.
- [Narrator] Since last year,
prices for ground beef have risen almost 15%
and prices for chicken breasts are up 16.4%.
- So meat is a very interesting case.
When you're building a herd this year,
you're building it for two or three years out.
You have to have some view
of what the world is gonna look like in a couple years.
Cows don't grow overnight, right?
In 2020, when some of these herds were being built,
we were going into a devastating recession.
Now, two years later,
we're dealing with meat shortages
because there's this undersupply of meat.
- [Narrator] Meanwhile, a combination of factors
caused gas prices to soar.
(tank wheels revving)
The Russia's invasion of Ukraine earlier this year
jolted the global market,
prompting oil price increases.
- Russia's invasion of Ukraine
has taken things like gasoline prices
from a stage where they were recovering from the pandemic
to where they're much higher than they were before.
- [Narrator] In late May, gasoline prices
topped $4 a gallon in all 50 states
for the first time ever.
Currently, California leads the country
with prices over $6.
- The war in Ukraine has had a big impact
on global energy markets.
When COVID hit, we went into this global downturn.
The price of gasoline in the U.S. went
from around $3 a gallon to $2 a gallon.
In 2021, by early '22, it was back up to over $3 a gallon.
So there was a recovery.
We had been through a full cycle.
Then Russia invaded Ukraine
and now we have gasoline prices
over $5 a gallon in many places.
- [Narrator] Higher energy prices
have also bled into air travel.
Analysts say that rising fuel costs
and staffing shortages have led
to a spike in airfares.
In April, airline fairs surged 18.6% from a month earlier,
the fastest rise on record.
- Americans are really frustrated right now
with what's happening
and one great place to see that
is in what's happening at the airport.
Flights are being canceled at the same time
that airfares are going up.
- [Narrator] We also found
that the biggest budget item for most households,
the cost of keeping a roof over your head,
is heading up.
Housing makes up 30% of the average household's budget
and it's up 5% from a year ago.
- So rents are another facet of this inflation problem.
It relates to undersupply of housing
that was built really over the last 10 years
since the 2008 financial crisis
and led to less building for over a decade.
And now we're paying a price for that
because we're seeing price increases for homes
and that's feeding through into rental prices.
- We now are entering a period of transition
from one of historic recovery
to one that can be marked by stable and steady growth.
Making this shift is a central piece
of the President's plan to get inflation under control
without sacrificing the economic gains we've made.
- [Narrator] As the country heads
into the midterm election season,
much of the political discussion
has centered around the damaging impact of inflation.
- I'm meeting with the Chairman today and Secretary Yellen
to discuss my top priority,
and that is addressing inflation.
- The Fed has shifted its strategy
over the last few months.
What they're trying to do now,
and what they think they have to do
is hit the demand side of the economy.
And they're gonna do that by raising interest rates
to make it more expensive to borrow.
The Fed is trying to hit demand to slow growth,
economic growth, just enough
so that inflation comes down to more manageable levels
of around 2% a year.
So one risk is that they don't hit demand enough
and inflation remains elevated.
The other thing that could go wrong
is that they hit demand so hard
that not only do they bring down inflation
but they drive the whole economy into recession.
And in that scenario, the real risk
that people need to worry about
is that in the process of going into a recession,
they kill this great job market
and unemployment starts rising.
(light music)