Inflation could be here for the long haul
Although Utah managed to bounce back relatively well from the recession shock of 2021, it is still breaking records with inflation highs and supply chain problems—creating more robust, new pain points in our local economy.
On January 12th, rents skyrocketed to a 39-year high after a year that saw a 17 percent increase. Mountain West states have experienced the highest inflation in the country, with an annual rate of 9.0 percent.
According to the 2022 Economic Report To the Governor, Utah economists forecast moderation in inflation with a hopeful resolve of supply chain challenges, lowering these numbers within the first half of 2022.
“If that doesn’t happen, then I don’t think that assumption of moderating inflation still holds. I think we’re going to see increasing interest rates, which will somewhat dampen the economy,” says Phil Dean, public finance senior research fellow at the Kem C. Gardner Policy Institute. “With that being said, from any historical standpoint, interest rates are very, very low, even with recent increases.”
In March, The Federal Reserve approved its first interest rate increase in more than three years, hoping to incrementally hedge spiraling inflation without limiting economic growth. The Fed expressed concern that the current high inflation rate near 8 percent might cause businesses and workers to increase their expectations of future inflation, thus raising prices and wages in a self-fulfilling prophecy. As a result, the Fed hinted at six more federal funds rate increases this year, one at each meeting.
The Bureau of Labor Statistics (BLS) reported that the US consumer price inflation index rose 7.5 percent over the past year before the seasonal adjustment—the steepest climb in prices since 1982. The BLS also noted that the food index rose over 6 percent over the past 12 months, and the energy index increased by 29.3 percent. In March, Utah fuel pumps matched record high prices for gasoline only seen in the throes of the 2008 recession.
With these increases, supply chain problems and continued geopolitical instability worldwide have further aggravated these issues for local Utah businesses and consumers.
The commodity squeeze
Chelsea Kasch, owner and principal designer of Chelsea K. Designs, says prices went through the roof and continue to do so every month by about 40 percent across the board for materials in the building. “Aluminum is one of the things that is killing us right now,” she says. “Your faucets, fascias, and exteriors—many people do aluminum. It is next to impossible to get right now, but we’ve had two projects that had to change from doing aluminum rain gutters and faucets and fascia to copper. It would cost less to do copper than aluminum, and you can’t even get aluminum.”
Because of the price, Kasch advises clients to use natural wood instead of aluminum on some design features. She put an order of aluminum in December, for example, and by January, it was up by 40 percent.
Plumbing fixtures are also a problem. Costs have consistently increased about 10 percent every month for five months straight—that’s a 50 percent increase in five months.
Metal mesh springs used in cabinetry used to be about $400 a sheet for Kasch, and they now cost about $4,000 a sheet.
“Everything is bid out, and it is only good for a month,” Kasch says. “After 30 days, no one keeps to the price they gave you because manufacturers are upping their prices quickly. No one can hold to the bid price more than four weeks prior.”
This is not unique to developers. Every industry is hurting and being forced to adapt at a moment’s notice.
The business sector continues to be impacted, and business owners are now planning a year for things that they would not have done before the supply chain problems. For Stephanie Holdaway, owner of Gatehouse No. 1 Furniture and Design, costs and time frames for receiving goods have risen in about every area.
“I think it’s just been a ripple effect across the board, from raising supply costs to fuel, which then affects shipping, shortage of supplies, and labor and trucking,” Holdaway says. “All of it has created substantial changes in pricing for us. We’ve tried to absorb that so that it doesn’t change dramatically for our customers. But in some cases, we’ve had to make adjustments to offset the higher costs for us.”
With everything constantly changing and evolving, Holdaway attributes her company’s ongoing success to her management team and their willingness to adapt and pivot.
“Our clientele has been amazing and very in tune with what’s going on globally,” she says. “It has helped us to help them plan. It used to be that people would come in the last few months of the development process to buy their furniture. They’re coming in six months to a year before a purchase.”
For businesses to make it through this tunnel without any extenuating circumstances, Dean recommends three things:
First, take care of your people, both financially and otherwise. With labor shortages, workers have more flexibility in opportunities. Businesses must make sure they’re taking care of workers financially, are competitive wage-wise, and do things that demonstrate they care.
The second is to be prepared for the economic resorting that continues to take place. “Customer loyalties are changing because of economic resorting,” Dean says. “It’s important to make sure you’re doing everything to care for your customers as they get new consumption habits. That’s going to require creativity and doing things differently.”
His last recommendation is to make sure to care for those left behind. Many businesses have done well, and many have not. As a community, the only way Utah will survive is to watch for those who have not done well and help bring them forward.