Is inflation ruining your Thanksgiving appetite?
Americans have grown deeply uneasy about shortages and inflation. We have grown so accustomed to getting exactly what we want, when we want, that the increase in the number and range of items on backorder or with prices creeping upward is leaving many of us feeling unmoored — like a ship waiting for a week to unload at the Port of Los Angeles.
Granted, most of us do recall shelves empty of items like toilet paper, milk, masa and even brownie mix when the lockdowns first went into effect in winter 2020. We swept the shelves clean hoping to hoard away some sense of safety in the face of the unknown killer virus invading the country.
Are the steadily increasing prices we see today on staples like meat, dairy, cooking oil and gasoline triggering flashbacks to those more dire times when economic catastrophe really was setting in? Is the thought of a somewhat limited selection of toys in December triggering memories of empty shelves of paper products and hand sanitizer?
It is true: turkey prices are at a high. Yet, most Americans are more easily able to afford one than 10 years ago. The price level has risen 7.5 percent compared to two years ago in October (a 3.7 percent annualized rate), but disposable personal income for the average individual has risen 10.6 percent (a 5.2 percent annualized rate). Inflation and stimulus from the federal rescue packages are eroding away the value of both household debt relative the size of the U.S. economy, and debt service payments relative to disposable personal income.
Employers complain of worker shortages, but most economists will tell you that this simply means wages are too low for current conditions. The upward pressure on wages from this tight labor market means wage growth is finally reaching rates not seen since 2007, before the financial crisis, although not yet near the heyday of the dot-com boom in the late 1990s. There is reasonable concern that momentum in wage growth has not matched the increases in overall prices. However, more workers have quit their jobs than ever before and the labor market continues to tighten, even as aid from last year’s rescue packages peters out.
The wage growth, in this case, is a healthy phenomenon. Although it poses challenges to businesses still finding their balance after prolonged shutdowns, it has not held the private sector back in the big picture. Industrial production continues to expand from its collapse in spring 2020, already back to its level before the pandemic recession hit, despite challenges from the tighter labor market and continuing shocks to supply chains. Retail sales are also strong.
As the economy gets back on track, workers may finally be starting to take back bargaining power usurped decades ago. Remarkably, the wage acceleration since spring 2021 has been greatest for the lowest-earning workers. That wasn’t the case earlier in the recovery.
If we take a breath, exhale and think of those blessings for a moment, it may create space to consider what is endangering the economy, or at least keeping it from sharing its gains fully with the average American. Overall, food prices are up 5.3 percent from a year ago, but prices for meat packaged for preparation at home, an industry in the hands of oligopolists, have been rising much faster. Energy prices are up even more, as dependence on oil instead of alternative energy sources means our energy needs are likewise in the hands of a very limited number of producers. And why are corporate profits up more than 20 percent since the end of 2019, at the same time wage growth lags inflation? The Biden administration already is considering ways to encourage more competition and prevent consolidation of ownership of entire industries in the hands of a few. What more can be done to ensure healthy, competitive markets?
While we are surviving what continues to be a harrowing time for humanity, it’s not the egg prices and runs on gaming consoles that pose the most fearsome prospects. It’s that we might fail to see the real hoarding going on in the economy, or the transformation occurring around us that brings the hope of shared plenty for the American worker.
Kadee Russ is a professor of economics at the University of California, Davis. She served as senior economist for international trade and finance at the White House Council of Economic Advisors from 2015 to 2016. She is a non-resident senior fellow at the Peterson Institute for International Economics and a member of the Econofact network.