--:-- Sean Rameswaram: Support for Today Explained comes from BetterHelp. Let me tell you a true story. Last weekend, I got an email from a listener who wanted to discuss their problems with me. And I said, look, I don't think that this is about me personally. At least I hope it's not. Why don't you try BetterHelp.com slash Explained? Absolute truth.
--:-- Emily Stewart: As the largest online therapy provider in the world, BetterHelp can provide access to mental health professionals with a diverse variety of expertise. Find the one with BetterHelp. The one is not me, guys.
--:-- Sean Rameswaram: Our listeners get 10% off their first month at BetterHelp.com slash explain. That's BetterHelp.com slash explained.
--:-- Emily Stewart: Support for this show comes from Macy's. Layering is an art form. All it takes is a bit of intention, style, and of course, the perfect cold weather staples. So find the perfect look for you with the help of Macy's Fall Fashion Guide, your one-stop shop for fall's latest trends and must-haves, curated by their experts.
--:-- Sean Rameswaram: From leather to denim to cozy knits, find everything you need to piece together your new fall look. Explore the Macy's Fall Guide for yourself and shop in-store or online at Macy's.com.
--:-- Emily Stewart: The United States of America is all about getting back to business as usual. There's just one thing getting in the way. Well, actually, there's a few. There's the coronavirus, which just continues to nag.
--:-- Sean Rameswaram: All right, following that breaking news, let's break in here with Chris Paul entering the NBA's COVID-19 health and safety protocols. We're wishing CB3 a speedy recovery.
--:-- Emily Stewart: Then there's the labor shortage, which we've talked about in the show before. And then there's this other big thing. Prices for all sorts of stuff are going kind of haywire. The price of everyday groceries going up. Everything from coffee to cereal to wine, up.
--:-- Sean Rameswaram: And if you haven't filled up in a while, get ready for some pain at the pump. Gas prices are way up. Whether you're serving them up from the deep fryer or selling them raw, chicken wings are hard to come by right now. I've been raising my wing prices every week for the last five weeks.
--:-- Emily Stewart: And all those surging prices, coupled with some serious supply issues, have some economists worried about that I-word. Right now, inflation is rising faster than it has since about 2008.
--:-- Sean Rameswaram: 2008. And we've really only seen a handful of periods of inflation at these levels since the early 80s.
--:-- Emily Stewart: Emily Stewart is a senior reporter at Vox. Like me, she was around in the 80s, but wasn't particularly bothered by inflation at the time.
--:-- Sean Rameswaram: So the economy is running a little bit hot right now, and you're seeing that in all sorts of places. To back up a little bit, what inflation is, is its general rise in prices.
--:-- Emily Stewart: So let's say you go to the grocery store, your basket of goods used to cost $20. Suddenly it costs $23. And the idea here is that we don't want inflation to get so out of control that your money doesn't go as far as it used to.
--:-- Sean Rameswaram: In an ideal world, your wages go up with inflation, right? So you can still afford those $22 at the grocery store because you're getting paid a little bit more.
--:-- Emily Stewart: What has happened more recently is that the government has pumped a lot, a lot of money into the economy. Mr. Biden's $1.9 trillion COVID-19 relief bill is nearing the finish line.
--:-- Sean Rameswaram: The House has passed the stimulus package, which is among the largest in U.S. history. And the worry is that there's going to be so much money, so much demand, that supply is not going to be able to keep up.
--:-- Emily Stewart: And so prices are going to start to go up and it could kind of get out of control here. Just because you care doesn't mean you don't also have to count.
--:-- Sean Rameswaram: I am worried in both the short and the medium term about overheating. I think that you can also kind of pull this out into specific products where we're seeing prices really take off.
--:-- Emily Stewart: So you've seen probably some stuff about lumber or maybe you've tried to buy a used car and have discovered it costs a lot more than you thought it would.
--:-- Sean Rameswaram: I'm more of a bike guy, but I hear it's even really hard to find a bike right now. But we did talk about lumber on the show with our colleague Jerusalem.
--:-- Emily Stewart: Another thing that's actually constraining supply of houses is that as the market tries to keep up and build more homes, lumber is actually way too expensive right now.
--:-- Sean Rameswaram: How did lumber get so bonkers again? The industry hasn't been doing super well for a long time.
--:-- Emily Stewart: If you think back to the housing crash in the early aughts, people haven't been just buying a lot of wood. And so I spoke to one sawmill owner named Steve Swanson.
--:-- Sean Rameswaram: I'm the president and CEO of the Swanson Group. We are a family-owned forest products manufacturer based in Oregon.
--:-- Emily Stewart: Steve has one sawmill and two plywood mills in Oregon, which is basically the place that the logs go to become the lumber, the product, right?
--:-- Sean Rameswaram: And what he says is that since 2007, his business has been bad. Housing starts plummeted.
--:-- Emily Stewart: So obviously the prices of commodity products like lumber and plywood just fell through the floor. He sold off a sawmill that he had before. He shut down two others. He cut down his workforce.
--:-- Sean Rameswaram: And just year after year, things were not great. Then the pandemic hits.
--:-- Emily Stewart: And so a couple of things go on there. Number one is that back in April March of last year a lot of people in the industry including Steve kind of ramped down production.
--:-- Sean Rameswaram: They think OK the economy is probably going to look bad for a while. I mean, you can remember back to last year in March and April when we didn't know if we were going into another depression.
--:-- Emily Stewart: They feel the same thing. We closed the country down and our markets once again plummeted. And companies like ourselves were on the verge of going out of business.
--:-- Sean Rameswaram: We had to make dramatic cuts in production to stay afloat. But demand picked up unexpectedly.
--:-- Emily Stewart: A lot of people were sitting at home and realizing that they hated their home. So they decided to build out an office, to build a deck, things like that.
--:-- Sean Rameswaram: Or they decided to move altogether and maybe build a new home. And so what you kind of have found is this real disconnect between supply and demand.
--:-- Emily Stewart: So in the moment that there was a need for more lumber, it kind of took the industry a while to pick up on what was going on.
--:-- Sean Rameswaram: And then once they did pick up on what was going on, it was kind of too late. We had employee issues when we tried to ramp up.
--:-- Emily Stewart: I mean, and we continue to have employee issues. We struggle every day to have enough people to run our facilities.
--:-- Sean Rameswaram: And so you have this really big imbalance where you saw, especially a little bit earlier this year, lumber prices really skyrocketing.
--:-- Emily Stewart: What's going on with lumber now? So you price lumber in per thousand board feet. Per thousand board feet. That's a lot of feet.
--:-- Sean Rameswaram: Yes. It's basically one board foot is 12 by 12 by one inches.
--:-- Emily Stewart: So historically, like in the past several years, lumber has traded around $200 to $400 per thousand board feet.
--:-- Sean Rameswaram: And we started to see earlier this year it surpassed $1,000, then $1,200, then $1,400. Got pretty crazy.
--:-- Emily Stewart: But prices have started to come back down. So I'm looking today and it looks like the price is about $800, $900.
--:-- Sean Rameswaram: So it's not where it was before, but things have started to settle down.
--:-- Emily Stewart: I still make lumber every day and I can't store it up in my lumber yard. You know, we make it, we have to sell it.
--:-- Sean Rameswaram: So we're going to sell it whatever the market will bear. And we take a few bucks off until that product begins to move.
--:-- Emily Stewart: OK, so lumber prices have been on this roller coaster. But what exactly does that tell us about inflation?
--:-- Sean Rameswaram: For a lot of people, it kind of means that the fear of runaway inflation is overblown and that the economy just has some weird bottlenecks and kinks to work out.
--:-- Emily Stewart: But that they're going to work themselves out eventually and that inflation is temporary, that a lot of these price changes are just the economy getting back to normal or getting back to the new normal.
--:-- Sean Rameswaram: You know, we shut a lot of things down last year and it's going to take a minute for everything to balance itself back out.
--:-- Emily Stewart: You also mentioned used cars. What's up with those?
--:-- Sean Rameswaram: So I have not tried to buy a car lately, but I know a lot of people who have and prices are up a lot.
--:-- Emily Stewart: These days, cars are a bit like a fine wine that becomes more valuable with age.
--:-- Sean Rameswaram: Sure, it's lost some of its shine, but a used car is more desirable than a vintage Bordeaux.
--:-- Emily Stewart: The price of used cars overall went up by 7% in May, and they were up 10% in April.
--:-- Sean Rameswaram: And what's going on with the cars? Same deal as lumber?
--:-- Emily Stewart: It's a similar sort of supply and demand issue, but it kind of has its own kinks and twists.
--:-- Sean Rameswaram: When we saw a lot of people want to build a house or build a deck last summer or this fall or even this year, a lot of people wanted cars, whether it be because they want to go on vacation and weren't comfortable flying maybe, or I live in a big city, maybe in a different world I wouldn't have wanted to take the subway and I wouldn't have wanted to drive.
--:-- Emily Stewart: And so it's a similar situation. The used car market also competes with the new car market.
--:-- Sean Rameswaram: And in manufacturing, including of new cars, there is a shortage of semiconductors, which are basically like the chips that you put in cars to make them work.
--:-- Emily Stewart: Because of that, there are fewer new cars going into the market. Further complicating the supply side are the people deciding it's a good time to hang on to their used car instead of buying something new.
--:-- Sean Rameswaram: Early on in the pandemic, when there were lockdowns and very little travel, rental car companies began to sell off some of their fleet.
--:-- Emily Stewart: Now they're trying to restock and they're in the hunt for used cars.
--:-- Sean Rameswaram: I think the big question with used cars right now, again, for now, is that the prices are not coming down yet.
--:-- Emily Stewart: And what do used cars tell us about inflation? We don't know when this whole microchip problem is going to be solved.
--:-- Sean Rameswaram: We don't know when international shipping is going to be figured out, which is also a component of this.
--:-- Emily Stewart: And so I think sort of you can tell a different story with used cars. If you think that the lumber story is that things kind of work themselves out and already are, the used car story is we don't know when this is going to work itself out.
--:-- Sean Rameswaram: It hasn't yet. And the longer it doesn't work itself out, the bigger a problem it becomes.
--:-- Emily Stewart: In a minute, Emily's going to take us back to the 70s when neither of us were around, but inflation certainly was.
--:-- Sean Rameswaram: Support for today explained comes from Chime. Nobody likes fees and complicated banking says Chime.
--:-- Emily Stewart: And Chime gets that says Chime. Chime is a financial technology company that says they understand that every dollar counts.
--:-- Sean Rameswaram: So when you set up direct deposit through Chime, they say you get access to fee features such as free overdraft coverage getting paid up to two days early with direct deposit so much more.
--:-- Emily Stewart: Chime says with qualifying direct deposits, you can be eligible for free overdraft up to $200 on debit card purchases and cash withdrawals.
--:-- Sean Rameswaram: Plus, they say you don't need to worry about monthly fees or maintenance fees.
--:-- Emily Stewart: You can work on your financial goals through Chime today. You can open an account in two minutes at chime.com slash explained.
--:-- Sean Rameswaram: That's chime.com slash explained. Chime feels like progress.
--:-- Emily Stewart: Chime is a financial technology company, not a bank. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC.
--:-- Sean Rameswaram: Spot me eligibility requirements and overdraft limits apply. Timing depends on submission of payment file. Fees apply at out-of-network ATMs.
--:-- Emily Stewart: Bank ranking and number of ATMs according to U.S. News and World Report 2023. Chime checking account required.
--:-- Sean Rameswaram: Maybe it's the brand names you'll be shocked Burlington has in store. Or maybe it's the quality of the items, the amazing selection, and the newest trends.
--:-- Emily Stewart: If you like to save but also like to stay in style, Burlington is your answer.
--:-- Sean Rameswaram: And the question you'll be asking yourself is, why go anywhere else? Burlington. Deals. Brands. Wow.
--:-- Emily Stewart: Today. Today explain.
--:-- Sean Rameswaram: Emily, we've been talking about the most recent inflation in the United States, But it pales in comparison to the kind of price hikes and currency fluctuations we've seen abroad, right?
--:-- Emily Stewart: Right. I lived in Argentina for a long time and kind of lived this firsthand.
--:-- Sean Rameswaram: To give you an idea, when I first moved down there in, I think, 2008, it was about three pesos to the dollar.
--:-- Emily Stewart: Now, I think on the black market rate, it's like well over 100 pesos to the dollar. So that's quite different.
--:-- Sean Rameswaram: And so the world is quite different there, right? You buy things in quotas because you might as well go into debt, right?
--:-- Emily Stewart: Because your money is going to be worth a lot less than it was when you bought something.
--:-- Sean Rameswaram: Or you see restaurants that will kind of write prices in pencil so that they can scratch them out and change them.
--:-- Emily Stewart: But the U.S. is not Argentina. And we should also note that here in the United States, it isn't necessarily bad for prices to rise.
--:-- Sean Rameswaram: I mean, a cup of coffee used to run like a nickel. And the other day I saw an XL flat white almond milk run like seven bucks.
--:-- Emily Stewart: Yeah, I mean, some inflation is natural and I would say even good to a certain extent.
--:-- Sean Rameswaram: We don't want deflation to happen. We don't want prices to go down, which is that's not good for the economy either.
--:-- Emily Stewart: A couple of really nasty things happen when that happens. The first thing is that people stop shopping altogether.
--:-- Sean Rameswaram: Why? Well, because they're waiting to see if prices are going to fall further.
--:-- Emily Stewart: And if they stop shopping, it means you get this buildup of inventory in warehouses.
--:-- Sean Rameswaram: So they say to manufacturers, well, I don't need any more stuff. So manufacturers stop making things.
--:-- Emily Stewart: And what does that mean that they do? They start laying people off.
--:-- Sean Rameswaram: So the Federal Reserve, which sets U.S. monetary policy, says that it wants inflation over time to average out to about 2%.
--:-- Emily Stewart: So basically everything should get about 2% more expensive every year. Forever and ever and ever?
--:-- Sean Rameswaram: Like the whole idea is like a little bit of inflation is good because it's good for the economy.
--:-- Emily Stewart: And what they are really trying to target is that 2% inflation rate and then full employment or at least the lowest unemployment rate possible.
--:-- Sean Rameswaram: And so they're constantly trying to balance that.
--:-- Emily Stewart: And the last time the Fed really had to roll up its sleeves and get involved was in the 1970s?
--:-- Sean Rameswaram: Right. So whenever anybody's going to scare you about runaway inflation in the United States, they are going to tell you about the 1970s.
--:-- Emily Stewart: So that was often described as this era of quote-unquote stagflation, where you saw a lot of inflation, but the economy wasn't growing.
--:-- Sean Rameswaram: Between the recession and inflation, this administration is taking you to the cleanest. I'll get away. You can't walk away from it.
--:-- Emily Stewart: You've been pinching pennies for months. And they couldn't quite get it under control.
--:-- Sean Rameswaram: There were also a lot of other economic shocks, whether it be high oil prices.
--:-- Emily Stewart: As has become common in many states in the East, cars have been lining up before dawn.
--:-- Sean Rameswaram: By the time the pumps opened, many had been waiting two and three hours for gas.
--:-- Emily Stewart: Or then-President Richard Nixon ending the dollar's convertibility to gold.
--:-- Sean Rameswaram: So a lot of things happened. It was a special set of circumstances.
--:-- Emily Stewart: But basically, inflation really took off.
--:-- Sean Rameswaram: And that is why people today, when they talk about something that they're nervous about, they talk about the 70s.
--:-- Emily Stewart: And how did Uncle Fed work it out? So what they did is that they raised interest rates so much that they pushed the economy into a recession.
--:-- Sean Rameswaram: So to give you a sense of how drastic this was, right now the average mortgage rate is about 3%.
--:-- Emily Stewart: And in 1981, it was about 20% or close to it.
--:-- Sean Rameswaram: So they made it really expensive for you to borrow.
--:-- Emily Stewart: The idea is that, you know, again, you put the economy into recession, people lose their jobs. It's not good, but the theory is sort of that's the only thing you can do if things get really out of control.
--:-- Sean Rameswaram: So the Fed jacked up interest rates in the 1980s in response to rising inflation. Is it doing anything right now? For now, no.
--:-- Emily Stewart: But the Fed also isn't not paying attention, which I think is an important point to make here.
--:-- Sean Rameswaram: I would hope they're paying attention, Emily. It's their job.
--:-- Emily Stewart: Well, right. But, you know, the way that you hear some people talk, it's like the Fed's never going to act and this is all going to spiral out of control.
--:-- Sean Rameswaram: The thing that I can understand is when you have really robust growth tremendous improvement in the employment market and prices are right It not like the inflation picture is benign and they are still in such an accommodative mode This I think is dangerous
--:-- Emily Stewart: But Jay Powell, who is chair of the Federal Reserve, has said, listen. Inflation has increased notably in recent months.
--:-- Sean Rameswaram: This reflects, in part, the rebound in spending as the economy continues to reopen and the exacerbating factor of supply bottlenecks, which have limited how quickly production in some sectors can respond in the near term.
--:-- Emily Stewart: As these transitory supply effects abate, inflation is expected to drop back toward our longer run goal.
--:-- Sean Rameswaram: That being said, he has said, listen, if we do think the economy is running too hot, like we're obviously going to do something.
--:-- Emily Stewart: I think the question is when.
--:-- Sean Rameswaram: And when you think back to, you know, six years ago, what happened was that we were starting to see these concerns about inflation bubble up.
--:-- Emily Stewart: Back in 2015, when Janet Yellen was chair of the Federal Reserve, she is now Treasury Secretary. She bumped up interest rates just a little bit.
--:-- Sean Rameswaram: But that did kind of cool off the economy in a way that some people will criticize her and say that she acted too soon.
--:-- Emily Stewart: And so it's a really it's kind of a tightrope here where you do want the economy to get better.
--:-- Sean Rameswaram: But you don't want inflation to take off so much that, you know, it gets out of control.
--:-- Emily Stewart: So Jerome Powell is in charge of the Federal Reserve. He was appointed by the former president. Were they tight?
--:-- Sean Rameswaram: And what's his relationship like with the new guy?
--:-- Emily Stewart: Well, I think that the former president Trump would have really liked to have gotten Jay Powell to bend to his will and did not.
--:-- Sean Rameswaram: And that's part of the reason that Trump and Powell had a bit of a I don't think they had much of a relationship at all.
--:-- Emily Stewart: But but the president would fire off tweets about Powell.
--:-- Sean Rameswaram: The president has been attacking the Fed chair on Twitter very often for raising interest rates.
--:-- Emily Stewart: A lot of people think that this is because the president wants a straw man to attack. Say it's not my fault if the economy looks bad on election day.
--:-- Sean Rameswaram: I think Republicans right now are saying, listen. The Biden inflation agenda of too much money chasing too few goods is causing major harm to hardworking families.
--:-- Emily Stewart: Consumers are feeling the real cost of what White House chief of staff called the most progressive domestic legislation in a generation.
--:-- Sean Rameswaram: Where's Joe Biden? He will not talk about inflation, even though he's proposed $7.1 trillion in spending.
--:-- Emily Stewart: So today we have a contest that you guys all get to participate in. It's like the price is right, but now it's the price is wrong because the wrong things are happening.
--:-- Sean Rameswaram: The price is wrong, bitch.
--:-- Emily Stewart: And Biden and Democrats are kind of likelier to agree with this argument that the Fed is making now that, listen, we think that the inflation is transitory.
--:-- Sean Rameswaram: We think that a lot of the weirdness that we are seeing right now will pass.
--:-- Emily Stewart: I should note that we don't know yet if Biden is going to reappoint Jay Powell to the Fed.
--:-- Sean Rameswaram: But the point is kind of like we want the Fed chair to not really talk to the president at all, even though the Fed chair is not immune from politics.
--:-- Emily Stewart: All right. So it seems like we're going to be on this roller coaster for a minute. Fluctuating prices, shortages.
--:-- Sean Rameswaram: We didn't even talk about the chicken wings, but that's a whole issue.
--:-- Emily Stewart: When do you think we'll know for sure whether this was just a transition as the economy opens back up or whether we have genuine inflation problems here?
--:-- Sean Rameswaram: I mean, honestly, nobody knows. Like, anybody who tells you that they know what is happening in the economy right now or with inflation is lying.
--:-- Emily Stewart: It is tricky. A year ago, we didn't know what was going to happen. A year from now, we don't know what's going to happen.
--:-- Sean Rameswaram: And I do think it's important to remember that, you know, if inflation becomes a problem, and I think that's a big if, the Fed has tools to combat it, right?
--:-- Emily Stewart: They can raise interest rates.
--:-- Sean Rameswaram: Also important to remember the 1970s is not the only thing in history that has ever happened, which sometimes I think a lot of the people who want to scare you about inflation would like you to forget.
--:-- Emily Stewart: And, you know, the U.S. isn't going to be Venezuela. The U.S. isn't going to be Argentina.
--:-- Sean Rameswaram: We have the tools here to kind of deal with the situation on inflation if it happens.
--:-- Emily Stewart: But the economy is really weird now. Like for someone like me, it's kind of fun to watch the ride.
--:-- Sean Rameswaram: But it's also a little scary and it's understandable to be scared.
--:-- Emily Stewart: Emily Stewart, you can find her reporting over at Vox.com. She's also doing some hosting in our Vox Quick Hits podcast feed.
--:-- Sean Rameswaram: You can find that wherever you find this. This is Today Explained. I'm Sean Rameswaram for them.
--:-- Emily Stewart: The team includes Miles Bryan, Victoria Chamberlain, Halima Shah, Will Reed, and Emily Sen.
--:-- Sean Rameswaram: Our engineers of Fume Shapiro.
--:-- Emily Stewart: Our editor is Matthew Collette.
--:-- Sean Rameswaram: Our supervising producer is Amna Alsadi.
--:-- Emily Stewart: Our veep of audio is Liz Kelly Nelson.
--:-- Sean Rameswaram: And her deputy is Jillian Weinberger.
--:-- Emily Stewart: We got jams from Breakmaster Cylinder.
--:-- Sean Rameswaram: Our facts are checked by Laura Bullard.
--:-- Emily Stewart: Our email is todayexplained at Vox.com.
--:-- Sean Rameswaram: And Today Explained is part of the Vox Media Podcast Network. Thank you.
