While the omicron variant of COVID-19 could pose new problems for supply and demand, it might not have a big effect on inflation, according to The Wall Street Journal (subscription).
The same old song: Supply and demand have both been impacted already by COVID-19, which has hampered production, disrupted shipping and ejected people out of the workforce. Some Federal Reserve policymakers are concerned that the new omicron variant could have the same impact as previous COVID-19 waves, causing problems for supply chains and hiring that might push up prices.
The big difference: During previous waves of COVID-19, most American households received stimulus payments, increasing families’ available cash and boosting consumption. That increase in demand helped to fuel inflation. This time, with no substantial financial assistance expected from the government, dwindling cash reserves might make Americans more conservative about their spending. The change could be clearest among Americans in low-income brackets, who won’t have the cushion of stimulus payments to tide them over as personal savings are depleted.
Omicron rising: Even if the omicron variant doesn’t impact inflation, it may still cause additional challenges. The severity of omicron remains uncertain, potentially making people hesitant to work in person. Omicron could also slow production and job growth while intensifying supply-chain disruptions.