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Omicron to contribute to US inflation; shutdowns unlikely: NRF

06 Jan '22
3 min read
Pic: Photomall | Dreamstime.com
Pic: Photomall | Dreamstime.com

Even with the experience of the past two years, there is no model that can predict how the economy responds to a pandemic, National Retail Federation (NRF) chief economist Jack Kleinhenz said, adding that COVID-19 omicron variant will bring uncertainty to the US economy in 2022 and could contribute to inflation. However, it is unlikely to cause widespread shutdowns or slowdowns.

“While omicron is highly transmissible, its effects can be relatively mild for those who are fully vaccinated and broad-based lockdowns are not expected,” Kleinhenz said. “Little is certain about omicron’s impact on consumer demand, but people who stay at home because of the variant are more likely to spend their money on retail goods rather than services like dining out or in-person entertainment. That would put further pressure on inflation since supply chains are already overloaded across the globe.”

Kleinhenz’s remarks came in the January issue of NRF’s Monthly Economic Review, which said 2022 is likely to be “another very challenging year of substantial uncertainty” and that questions to be answered include whether the pandemic is near its end, whether supply chain issues will be resolved, how high inflation will go and how long it will last.

November sales – excluding automobile dealers, gasoline stations and restaurants – were up 14.8 per cent year over year, and NRF believes holiday sales during the two months were on track to grow as much as 11.5 per cent over 2020, the NRF said in a media release.

Inflation, which was driven by shortages of goods as COVID-19 shut down factories and snarled supply chains while government stimulus fuelled consumer spending, is likely to continue in 2022, but should eventually slow.

“Inflation started gradually and then came on strong, but clearly heated up during 2021 and has become a formidable factor facing the economy and especially consumers,” Kleinhenz said. “What is ironic is that the monetary and fiscal policy that pulled the economy out of the recession has prompted unprecedented growth that is now undermined by accelerating prices.”  

Worries about inflation can become a self-fulfilling prophecy, especially as workers seeing higher prices for everyday products like groceries may demand higher wages that force employers to increase prices, Kleinhenz said. Inflation as measured by the federal Personal Consumption Index was up 5.7 per cent in November, the highest in nearly 40 years, and a Federal Reserve Bank of New York survey shows consumers expect inflation to grow 6 per cent over the next year. But the same consumers expect only 4 per cent inflation over the next three years as price increases slow. With the Fed planning multiple interest rate increases this year, consumers will be encouraged to save money, helping cool off inflation.

Fibre2Fashion News Desk (KD)

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