Vaccine May Spark Inflation Jump As Consumers Spend More

Consumers freed by a COVID-19 vaccine from the last eight months of disease-related restrictions could unleash enough spending on services such as travel and dining to drive inflation to levels not seen in years, economists told the Wall Street Journal.

One reason for inflation as measured by the Consumer Price Index — a widely-watched measure of economic activity — is that businesses in some sectors will take time to rebuild workforces to levels sufficient to meet pre-COVID-19 demand, but eventually will be up to full capacity, the WSJ reported.

Another reason the WSJ cited is that data suggests many Americans saved federal economic stimulus they received during the spring. They presumably could spend that money once options re-emerge.

“We’re bullish on [economic] growth for next year,” said Ellen Zentner, an economist at Morgan Stanley, told the WSJ. “Some of that comes from pent-up demand for services.”

Another reason the numbers may show significant inflation, the WSJ reported, has to do with the way they’re calculated. Inflation is reported monthly as a year-over-year percentage change. That means economic activity for months post-vaccine will be compared with months that fell during the depths of the COVID-19-related shutdowns beginning in March 2021.

The WSJ reports that a looming question after a vaccine is deployed will be how the Fed will respond to inflation if it hits the 2 percent target the central bank has public embraced.

Fed governors have indicated in the past that inflation about 2 percent is okay for a spell if it follows a period of sub-2 percent inflation. But whether that policy will carry the day, or be pushed aside by inflation hawks, has yet to be seen.

Predicting the effect a COVID-19 vaccine would have on the economy involves anticipating not only the ways consumers will react to being vaccinated, but also the willingness of consumers to be vaccinated in the first place.

The National Foundation for Infectious Diseases reported in 2019 that only about half of U.S. adults planned to get flu shots in 2018 even though 60 percent thought getting them was a good idea.