Inflation not expected to spike prices long term in San Francisco North Bay

Even with the U.S. Labor Department reporting consumer prices going up 4.2% in April, North Bay economists, chambers of commerce officials and businesses large and small say they expect that trend to level off.

Exacerbating the problem of rising prices are two things. First, the injection of trillions of dollars into the economy by the federal government may fuel inflation as most standards presume. Second, COVID-19 has disrupted the supply chain of goods.

“Lots of stimulus when demand exceeds supplies is a recipe for rising prices,” said Robert Eyler, a Sonoma State University economics professor. He estimated a 2% to 3% rise in inflation in 2021.

When compared to the double-digit periods of the 1970s, the increase represents barely a blip on a chart — but something to watch out for.

Along with the supply chain issues, the problem of rising gas prices may lead to shipping companies tacking on “pass-through” surcharges, Eyler warns. That could affect companies relying on shipping their products if their brick-and-mortar locations are closed.

“This shouldn’t be missed,” he said.

Supplies tightened for consumers when businesses decided to hold back on building up their inventories.

“It’s going to be an intriguing in next few months,” he said.

Eyler anticipates companies wouldn’t raise their prices to compensate for rising costs or to even make up for lost time.

“Many are just going to have to survive — depending on the industry. With restaurants, it might be a struggle to raise prices because they just want to get people in the door,” he said. “One of the biggest things out of the gate is they need to advertise because customers will wonder: ‘How open are you?’”

And those consumers may have the upper hand.

“Businesses are not in a position where they can raise prices where they’re out of control,” San Rafael Chamber of Commerce Executive Director Joanne Webster said.

This is despite the expectation of increased costs such as utilities.

“We might see some increases (in prices) but nothing significant,” she said. “They’re all digging out and wanting to keep their staffs. I hope we do see additional spending.”

All await California’s reopening and elimination of the tiers blueprint, with the countdown to June 15.

Janeen Murray of Sonoma County Go Local, a membership-based advocacy group intended to help small businesses promote, believes companies would be hard pressed to actually decrease prices.

“They can’t afford that,” she said of her group’s membership, much of it consisting of retailers.

Kyle Bundesen, sales manager at the Trek bicycle shop in downtown Santa Rosa, sees the summer as neither a period of higher prices for bike goods nor a lowering.

“I think they’ll stay the same. We’re not going to take away the value of them because of the high demand, and there’s just no reason to adjust anything,” he said.

Bicycle sales have skyrocketed during the pandemic.

On other transportation fronts, so have auto sales. Still, their prices have already gone up and are also expected to remain the same, according to Marin County Ford Sales Manager Glenn Ross.

“We don’t anticipate them going up. We need to watch what the market is doing, but I just don’t see any more increases. The inventories have started to increase — maybe not at a huge flow, but a trickling of more (vehicles),” Ross told the Business Journal.

The demand may still be ahead of the supply.

“It’s hard to buy a pickup truck today,” Bruce Raabe, a wealth adviser with Relevant Wealth of Santa Rosa.

“With the COVID recovery, we’re seeing a scarcity of supply. It’s had a much greater impact (on the economy) than inflation. Too much money and not enough inventory is certainly something to worry about,” he said, while stopping short of declaring a noticeable inflationary period coming up. “Anything you want to buy now is scarce and expensive.”

Federal Reserve Chairman Jerome Powell has repeatedly argued the economy — due to roar back from the brink — will see a brief period of rising prices. The Fed insists on maintaining inflation to about 2% over the long haul and keeping interest rates near zero in the short term.

It’s anyone’s guess what could happen if prices get away like a runaway freight train. With a shortage of workers, some companies may be forced to reluctantly offer higher wages to attract them. Workers insist on higher wages when prices of goods go up. The hospitality sector — which makes up over 20% of the North Bay economy — may experience the full weight of this issue.

“It could be a perfect storm happening,” Raabe said. “But what’s terrific about our economy is it’s resilient.”

Susan Wood covers law, cannabis, production, agriculture, energy and transportation as well as banking and finance. For 25 years, Susan has worked for a variety of publications including the North County Times in San Diego County, Tahoe Daily Tribune and Lake Tahoe News. She graduated from Fullerton College. Reach her at 530-545-8662 or susan.wood@busjrnl.com