Will delta be a game changer?
The highly transmissible delta variant of COVID-19 is threatening to dampen the economic recovery from the pandemic, economists say. It has caused companies to push back return-to-office dates and schools to reconsider remote learning, and bolstered the case for employers to institute face mask and vaccine mandates.
More lockdowns and restrictions on travel and businesses
do not look imminent, but could the variant — which the Centers for Disease Control and Prevention says now accounts for more than 93% of all COVID-19 cases in the U.S. — result in consumers paying lower prices for goods and services?
Before delta accounted for the majority of cases and after millions of Americans got vaccinated, many people began to experience a glimpse of life what might feel after the pandemic. Millions boarded planes, took road trips, dined out, went to concerts and sporting games in person for the first time in more than a year-and-a-half.
As a result of pent-up demand, consumers are paying 5.4% more than last year across the board for goods and services, according to the June Consumer Price Index. Used and rental cars, airfare as well as hotel fares, which have seen the largest price increases month-to-month, are also driving inflation.
“
Frontier Airlines is noticing ‘softening in the level of bookings over seasonal norms that we believe is directly related to the increased COVID-19 case numbers associated with the Delta variant’
”
— Frontier’s Aug. 4 earnings report
In Los Angeles where indoor mask mandates were imposed last month regardless of vaccination status, indoor dining visits were 17% lower in the week ending Aug. 1 compared with the same period in 2019, The Wall Street Journal reported, citing data from foot-traffic analytics firm Placer.ai.
Frontier Airlines
ULCC,
+4.44%
is also noticing “softening in the level of bookings over seasonal norms that we believe is directly related to the increased COVID-19 case numbers associated with the Delta variant,” the company said in its Aug 4. quarterly earnings report. (The company didn’t respond to a request for comment.)
If Americans reconsider trips, dining out and/or make any other lifestyle changes due to concerns for the variant, “in the near future, it would take the edge off inflation concerns because it would mean less demand,” Mark Zandi, chief economist at Moody’s Analytics, told CNN.
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‘For whatever reason, Americans don’t seem to be responding strongly to the news, at least not strongly enough to have a price impact’
”
— David Mericle, chief U.S. economist at Goldman Sachs.
Indeed, several economists, including Federal Reserve Chairman Jerome Powell have said that prices will remain elevated in the coming months, but will “moderate” once Americans adjust to the new normal. He too cited pent-up consumer demand and supply shortages for certain materials.
Thus far, delta isn’t causing a sudden change in behavior, said David Mericle, chief U.S. economist at Goldman Sachs
GS,
+2.02%.
“For whatever reason, Americans don’t seem to be responding strongly to the news, at least not strongly enough to have a price impact,” he said, based on high-frequency transaction data his team analyzed.
But if COVID cases continue to rise, Americans are likely going to cut back on travel and eating out, said Kevin Cummins, chief U.S. economist at NatWest Markets. That would help “take a little bit of the froth off the reopen and the surge that we’ve seen recently that has really led to this temporary supply-related issue,” he said.
The Bureau of Labor Statistics is set to release CPI data for July on Wednesday. Economists are forecasting a 0.5% increase in prices for the month. However, both Cummins and Mericle said it will still be too early to determine from this report if or how the delta variant is impacting overall prices in the U.S.
