U.S. Consumption Drives Global Rise in Durable Goods Prices -Key factors are Massive fiscal/monetary policy packages and changes in consumer behavior

 The recent worldwide surge in inflation is being driven by higher prices of durable goods. This rise in durables prices is particularly marked in the U.S., where they have jumped around 20% year on year, a rate of increase that has not been seen for 80 years. Prices of most durable goods, including cars, ICT devices, appliances, and furniture, are climbing.

 In the background is a major shift in demand from services to durable goods. The U.S. has a strong presence in the global durables market, and the steep rise in demand there has flowed into supply chains and led to higher output in a wide variety of industries globally, and in some cases, supply constraints. This supply/demand pressure in the durables market has pushed up the prices at which the goods are traded, and rippled into a worldwide upswing in consumer prices. In Japan, the impact on retail prices has been limited, though the prices of imported durable goods have risen almost 10% from the previous year.

 A couple of factors have served to push up U.S. durables demand: (1) large-scale fiscal and monetary policy measures and (2) changes in consumer behavior. The consumption of durable goods is highly elastic in response to both income and interest rates, and huge cash handouts to households and cuts in interest rates have given a boost to consumption. In addition, the shift to teleworking during the COVID-19 pandemic was more pronounced in the U.S. than in many other countries, and many people have been moving out of densely populated cities into the suburbs. Lifestyle changes like this have also played a part in driving up durables demand. According to estimates, 60% of the rise in durables consumption in the U.S. is due to policy factors, with the remaining 40% being the result of changes in consumer behavior.

 With policy looking set to move toward tightening going forward, the rise in durables consumption is likely to slow, and on the demand side, too, upward price pressure could ease. However, if supply constraints are only alleviated slowly, or if lifestyle changes result in a sustained stimulus for the consumption of durable goods, the impact of policy on easing the supply/demand pressure will be limited, and inflation could be here for the long term, so caution is required.

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