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May 7, 2021

Is inflation really on the way?

On Tuesday, Treasury Secretary Janet Yellen said, "Interest rates will have to rise somewhat to make sure that our economy doesn’t overheat." All investors heard was the I-word and stocks dropped. Yellen quickly walked back that statement: "I don’t think there’s going to be an inflationary problem, but if there is, the Fed can be counted on to address it." 

While the Federal Reserve isn't foreseeing a big spike in inflation, Chair Jerome Powell does say "transitory" inflation is on the way. As the economy hits full gear, prices for everything from commodities to services will spike. Lumber alone is already up 280% since the onset of the pandemic (more on that below). But once the burst from pent-up demand passes, 2021 price hikes should correct. At least that's the Fed's narrative. 

Are Americans concerned about potential price hikes? To find out, Fortune teamed up with SurveyMonkey to poll 2,113 adults in the U.S. between April 30 and May 3.* The poll's modeled error estimate is plus or minus 3 percentage points.

Here's what we found. 

The numbers to know 

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The big picture

A few deeper takeaways

Americans' view of the economy depends on which party occupies the White House. Just look at this past Fortune Analytics chart and see how Republicans and Democrats flipped views after Biden took office. So it isn't surprising that the share of Republicans (75%) who are "very concerned" about inflation is much higher than Democrats (42%). And Independents (61%) are right in the middle. Given how high those concern levels are now—with inflation still pretty low on paper—it poses the question: If inflation takes off, will it become a political issue? 

Over the past 10 months, we've seen a 34 percentage point uptick in the number of Americans who are ready to jump back on a plane. Of that uptick, 20 percentage points came during the past three months. Clearly, the vaccine rollout is instilling confidence into Americans. The upswing is coinciding with a huge rise in booked flights—and upped flight prices.

There is an incredible amount of pent-up demand in the economy, for everything from nightlife to amusement parks to Airbnb rentals. That could set the stage for steep price hikes on the service side of the economy. The question is, will those price hikes reverse once the demand settles?

Commodities are surging across the nation: Corn, steel, copper. But none more so than lumber.

What's going on? During the early days of the crisis, mills slowed production. At the same time, bored quarantining Americans rushed to buy up materials for do-it-yourself projects. But before sawmills could respond to that uptick in demand, another demand spike took place: Record-low interest rates helped spur a housing boom. That boom, exacerbated by the largest cohort of millennials hitting their peak homebuying years, is drying up existing home inventory and sending buyers in search of new construction. Already, home construction has climbed to its highest level since 2006. 

Sawmills only have so much capacity, and supply still can't catch up. That phenomenon is happening across commodities: Production got turned off during the shutdowns, and now it can't handle the demand surge enabled by the end of the pandemic.

It could get worse. For example, once everyone is commuting again, we're going to need a lot more oil. Again, the Fed sees this as "transitory" inflation. However, there is a chance some of it isn't: While analysts in the lumber industry tell me $1,300 per thousand board feet isn't sustainable, the pre-COVID price of $300 to $500 may never come back. Instead, we might get stuck in the $800 to $1,000 range. 

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