The fast-spreading Omicron variant could send prices soaring as consumers trapped at home keep shopping, putting pressure on supply chains – retail economist says

Consumers are likely to spend more on goods rather than services if Omicron keeps them stuck at home, one expert says.

Photo by Horacio Villalobos#Corbis/Corbis via Getty Images

• The Omicron variant could fuel inflation, according to NRF retail economist Jack Kleinhenz.
• He anticipates that consumers will spend more on goods than services, pushing up demand. 
• Increased demand will put pressure on supply chains and drive up prices, he said. 

The Omicron variant could fuel inflation and the supply-chain crisis by keeping more people at home and spending money on products rather than going out, a retail expert has warned.

The variant is spreading rapidly across the US but while experts aren't expecting the country to go back into lockdown, it's still keeping some consumers at home and preventing certain businesses from opening. 

The spread of the virus will likely prevent shoppers from spending their disposable income on experiences such as dining out, going to the movies, or heading on vacation, which could mean they're more likely to spend their dollars shopping for retail goods. 

National Retail Federation chief economist Jack Kleinhenz warned the result of this increased demand for these goods could put extra pressure on the already strained supply chain and ultimately, send prices soaring. 

"Little is certain about Omicron's impact on consumer demand," Kleinhenz wrote in a blog post Wednesday.

"But people who stay at home because of the variant are more likely to spend their money on retail goods rather than services like dining out or in-person entertainment.

"That would put further pressure on inflation since supply chains are already overloaded across the globe."

Inflation hit 40-year highs in November as the supply chain crisis raged on and consumer spending stayed strong. But there is some evidence that this crisis may have peaked and will ease up in the coming months. 

But concerns around inflation can become a self-fulfilling prophecy, Kleinhenz said.

"If prices reflect rising demand for goods and services and workers believe prices will keep rising, they will demand higher wages — which will force employers to raise prices," he said. 

"Researchers find that consumer beliefs about inflation are shaped by what they can see — extreme changes in grocery prices, especially goods purchased frequently such as milk and bread, for example — rather than government reports. Consequently, economists focus not only on actual inflation but inflation expectations."

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