Consider This from NPR - Why Everything Is More Expensive Right Now

Episode Date: June 14, 2021

From computer chips to rental cars to chicken breasts, a complex global supply chain is straining under pent-up post-vaccine demand. NPR's Scott Horsley explains what's going on — and why Biden administration officials think price hikes will eventually level out.Additional reporting this episode from NPR's Camila Domonoske — who reported on computer chips in car manufacturing — and NPR's Weekend Edition Sunday, which reported on slowdowns in food processing and manufacturing. In participating regions, you'll also hear a local news segment that will help you make sense of what's going on in your community.Email us at [e-mail] more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

There was a point this spring on the island of Maui when the cheapest rental car you could find... A Toyota Camry was $722 a day. Yeah, you heard that right. $722 a day. That's according to Hawaii's KHNL. In fact, it is still so hard to find a rental car there that tourists are renting U-Hauls instead. Hawaii U-Haul executives say it's the busiest they've been in years. In fact, this U-Haul thing has become such a popular alternative that the State Tourism Board

felt compelled to say it, quote, does not condone visitors renting moving trucks and vans for leisure purposes. Tourists are finding them way more affordable than rental cars. Of course, that also means now we're seeing a shortage of U-Hauls.

Now, Hawaii is an extreme example, but nationwide, the price of rental cars has more than doubled in the last year. Prices have also soared for air travel, washing machines, and used cars, not to mention all the stuff in the grocery store that costs more than it did a year ago. The big question now is, how long will this last? Well, we're seeing some inflation. I don't believe it's permanent, but we will watch this very carefully. Treasury Secretary Janet

Yellen said earlier this month that she expects price pops will level out as supply chains catch up with pent-up pandemic demand. We shouldn't expect this process to be complete in a month or two, but I strongly believe we're on a recovery path, we're making progress. Consider this. That recovery path depends on global supply chains. Supply chains that policymakers in Washington, D.C. are urgently trying to make stronger. From NPR, I'm Elsa Chang. It's Monday, June 14th. luxury mattresses online without the hassle or expense of traditional mattress stores,

so Sotva customers have always paid about 50% less than retail. Visit s-double-a-t-v-a-dot-com-slash-npr-today where NPR listeners save an additional $200. Sotva, the comfort company. An internal investigation found that a cop with the California Highway Patrol sexually harassed 21 women. But those findings were kept secret until a new state transparency law passed. We dug through hours of tapes to find out what happens to officers who cross the line. Listen to On Our Watch, a podcast from NPR and KQED. It's Consider This from NPR. A new car these days is full of computer chips, not just in a fancy touchscreen display, but also in places you might not expect, like the engine.

Oh, engines actually have very sophisticated algorithms. Chris Perides is a professor at Clemson University. He says you can also find chips in... Suspension, braking, entertainment systems, of course. Steering, seats. To detect whether somebody's sitting on them. Even the tires. It just measures the pressure of your tires.

Last year, when the pandemic hit, car companies thought they would be selling fewer cars, so they wouldn't need as many chips. So they canceled some of their orders. But then they started selling a lot more cars than expected. And when they tried to place new orders, they found that chip makers had sold all their chips for the next year because demand is also soaring for laptops, smartphones, and gaming systems. Meanwhile, manufacturing capacity? It was already at 100%. Jody Shelton is the CEO of the

Global Semiconductor Alliance, a trade group. Unfortunately, what that means is that, I mean, there's nothing that is going to happen on the capacity side. 2021 is spoken for. In fact, because of this chip shortage, some automakers have had to temporarily shut down production for weeks at a time. The latest one was just this week at a Hyundai plant in Alabama, where almost a thousand people are off work without pay. Shutdowns like that are part of what prompted the Biden administration this month to launch a review of key industry sectors, including semiconductors, batteries, and minerals. In fact, a lot of the underlying technology that has powered the semiconductor,

the computer chip industry globally, was invented in the United States. Brian Deese, the director of the National Economic Council at the White House, spoke to NPR this past week. 30 years ago, the United States was a leader, not just in inventing computer chips, but actually producing them as well. But we've seen over time, in the 90s, we had nearly 40% of global production. That's now fallen down to close to 10%. That kind of plummet is what has led Republicans and Democrats in the Senate last week to do something they almost never do. They actually agreed on something. They passed a huge

bill with strong bipartisan support that will invest hundreds of billions of dollars in funding for science and technology innovation. But even if that bill also passes the House, Brian D. says it'll still take a year or two for the investment to pay off when it comes to the availability of computer chips. those chips are not put at a competitive disadvantage. As we move through this process of the economy turning back on, demand coming back, and there are going to continue to be some disruptions. This is true for so many sectors of the post-vaccine economy right now. The road back is just going to be a little bumpy. We're reopening fairly quickly, and that's causing a few adjustment problems. Agricultural economist Chris Barrett told NPR that the global supply chain has also been slow to catch up to demand for food in restaurants.

Because a lot of food manufacturers and processors last year had to ship their operations to service grocery stores instead of restaurants. Now they're having to switch back. And that requires retooling machinery, it requires reconfiguring production lines, it requires reworking the whole logistical routing of how their trucks and storage facilities operate. And that means at a time when restaurants are short on staff, they might also be short on chicken breast or bacon. And short supply is what drives prices up. According to the latest Consumer Price Index, that's the government index that tracks prices across the

country, the cost of consumer goods is up 5% over a year ago. That is the highest level of inflation in nearly 13 years. Which brings us back to where we started, rental cars. Turns out, they make a great case study for the interconnected nature of the global supply chain and why almost everything is more expensive right now. I spoke about that with NPR's senior economics correspondent, Scott Horsley. Okay, so Scott, break this down for us. Why are rental cars and so many other things so expensive right now? There's lots of pent-up demand and just not enough supply. You know, rental cars are an extreme example, but they do help to illustrate the broader picture. In May of last year, almost nobody was renting a car. The rental car companies weren't

even sure if they'd be in business today. They sold off hundreds of thousands of cars just to stay afloat. And now we've got a lot of newly vaccinated Americans who are traveling again, and there aren't enough rental cars to go around. The people who put together the Consumer Price Index say rental car prices jumped 110% in the last year. And Denver travel agent Pamela Wilson says that's if you can get a car at all. What was maybe 500 is now 1,000. Places that you were always able to find a car is not there at all. And we're talking every car company, Avis, Budget, Hertz. You're checking all of these car companies, none of which are available. And a little consumer tip, Elsa.

Wilson's been telling clients who do find a rental car to reserve to pay in advance or else they might find themselves replaying that classic Seinfeld scene. Unfortunately, we ran out of cars. But the reservation keeps the car here. That's why you have the reservation. I know why we have reservations. I don't think you do. But this is not so funny in real life, right, Scott?

I mean, how does this jump in rental car prices fit into the broader inflation story? Well, rental car companies are trying to rebuild their fleets to meet this surge in demand, but new cars are hard to come by. We've all heard about the shortage of computer chips that's plaguing automakers. So the rental companies are buying more used cars, and that's driving up the cost of used cars. That's up nearly 30% in the last year. And it's not just car makers who are struggling with the lack of computer chips.

Appliances use a lot of chips now, too. Richard Clark is a sales manager with Kelly Appliances in Aiken, South Carolina. He says appliance manufacturers are also having a hard time keeping up with demand. So they go with the most popular types, which are the stainless steel appliances. And that's kind of king right now. So anybody that comes in here wanting colors of appliances are going to be waiting quite a while. Appliance prices have jumped more than 12% in the last year. And washing machines, Elsa, are really in a spin cycle. That's up more than 26%. I see what you did there. All right. Well, both the White House and the

Federal Reserve are saying that this jump in inflation is temporary. But what do they say is going to bring prices back down? Well, some of this is just payback for the sharp drop in prices we saw a year ago when the pandemic first hit. So airfares, for example, they're up 24% in the last year, but that's really just getting back to normal. And once that happens, prices should level off. Some of the bottlenecks we've talked about, like with computer chips, should get worked out, although it's going to take some time. The big story here is demand has bounced back more quickly than businesses have been able to ramp up. And one thing that will help is businesses hiring more than millions of people who are still out of work. And what if this higher inflation is not temporary? Well, then the Federal Reserve would have to step in and raise interest rates. But

that's really strong medicine. It slams the brakes on the economy. So nobody wants to see that happen prematurely. For now, markets seem to be buying this argument from the Fed and the Biden administration that the run up in inflation is temporary. The monthly inflation reading for May was actually lower than for April. So there are some signs the high pressure on prices is being turned down already. That is NPR's Scott Horsley. The Fed, by the way, is the nation's inflation watchdog. But even though prices are rising on a lot of items, the Fed is widely expected to keep interest rates near zero when it meets this week in hopes of encouraging the economic recovery along and helping more people get back to work. You also heard reporting in this episode from NPR's Camila Dominovsky

and our colleagues at NPR's Week in Edition Sunday. It's Consider This from NPR. I'm Elsa Chang.