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U.S. consumer prices probably jumped again in July, with little sign that households -- buoyed by pandemic savings -- are balking at paying more for goods and services.Economists expect data due out on Wednesday to show a 0.5% increase in the consumer price index. While that would be a slowdown from the previous month, it would leave the headline rate of annual inflation at 5.3% -- close to the 13-year high reached in June.

How long inflation will stick around has become a key question about the U.S. recovery, central to discussion of the Biden administration’s spending plans and the Federal Reserve’s timetable for tightening monetary policy.

It could take several more months of data to settle those debates. But one thing that’s clear is that U.S. business still enjoys plenty of pricing power. Firms that are having to pay more for their inputs –- whether materials or labor -- have largely been able to pass those costs on to their customers.“This summer, consumers are price-takers,” said Tim Quinlan, senior economist at Wells Fargo & Co. “I think people were just, ‘whatever -- we’ll pay for it when the rent comes due and put it on the card for now.’”

‘No Resistance’

Many of the cost increases facing business are driven by supply-chain issues that are global in nature -- like soaring commodity prices and a squeeze on cargo shipping.But the ability to pass on those higher costs depends on demand -- which varies by country, and appears to be especially strong in the U.S. Price mark-ups there “far surpass what is going on in the rest of the world,” economists at the Institute of International Finance noted last week.

U.S. stimulus programs were larger than in most other countries, and the economy has reopened faster. Households are reckoned to have accumulated some $2 trillion in extra savings –- and many have gotten a wealth bump out of the housing and stock-market booms.

In recent earnings calls, several executives pointed to their ability to hike prices without denting demand from U.S. consumers.Chipotle Mexican Grill Inc., which increased menu prices earlier this year, said last month that the company has encountered “no resistance whatsoever.” Appliance maker Whirlpool Corp. expects to maintain “healthy” demand even after hiking prices by as much as 12%, Chief Financial Officer Jim Peters said in an interview last month.While a cushion of pandemic savings is helping to prop up that demand for now, the longer-term outlook for spending may depend on whether U.S. wages go up as much as prices.

In the rush to reopen, many firms are paying more. Giants from McDonald’s Corp. to Inc. have raised wages, offered one-time bonuses or both. A record 27% of small-business owners say they’re planning to boost compensation in the next three months.

According to one widely watched measure, wages and salaries rose 3.2% in the second quarter from a year earlier -- the fastest pace in 13 years.

Real Pay

But that’s still not enough to make up for the even bigger jump in the cost of living.A recent study by the Peterson Institute for International Economics found that workers in most U.S. industries are getting paid less than in December 2019, after adjusting for inflation.“Real compensation increased dramatically in the first six months of the pandemic, as prices fell while compensation continued to grow,” economists Jason Furman and Wilson Powell III wrote. “Since then, however, price growth has been more rapid than compensation growth, and so real compensation has been falling.”

Bloomberg Economics: CPI Heat Wave to Set New High

A drop in the purchasing power of wages is one thing that could cool off U.S. consumer demand. Rising housing costs is another.Rents in newly signed leases soared 14.6% in June from a year earlier, the most on record, according to real-estate consultant RealPage Inc. It takes time for the latest price shifts captured by industry analysts to feed into official inflation measures -– but the effect could be substantial, because shelter makes up about one-third of the consumer-price index.There are a few indications that consumers are starting to feel some kind of inflation squeeze. In the University of Michigan’s July survey, the share of respondents who said that high prices made it a bad time to buy household durables was the biggest since 1980.But most data point in the other direction. The Conference Board found that the number of Americans who plan to buy cars, homes and other big-ticket items over the next six months increased in July –- even though those things have been getting more expensive.

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