The Cost of Today

Craig Douglass On Consumers

“Invest in inflation. It’s the only thing going up.” So said Will Rogers. The Oklahoma cowboy, humorist and performer had it right. And it would be funny if it weren’t true. This hidden form of taxation hits all of us, but mostly negatively affects those less able to absorb it into their everyday budget. If you even have a budget.

While the natural tendency is to find someone to blame, and then exact punishment, it seems to us we should be a little more appreciative of the cause. (We certainly know the effect.)

Those who study this stuff are generally in agreement on why we are facing higher prices at the grocery store and the gas station. Since October 2020, consumer prices have increased 6.2%. This is the greatest year-over-year increase since 1990. Our source is the Bureau of Labor Statistics as reported by Nate Silver’s FiveThirtyEight, a statistical analysis outfit owned by ABC News.

And the cause? In overly simplified terms, the inflation we’re experiencing is an explosion in consumer demand fueled in part by direct stimulus payments to most Americans, a recovering economy and the slow response by business and industry due to supply chain and employment problems. Immediate demand met by hampered supply equals higher prices.

Transitory. That’s the word the Federal Reserve has used and, until recently, President Joe Biden’s term for the situation. It’s a fancy word meaning this too shall pass. The economic and political question is, when? Let’s look at the politics.

November polling reveals 40% of registered voters believe the Biden administration is “very responsible” for the current inflation, while 62% say the president’s policies are “somewhat responsible.” That’s where those stimulus checks may come in. Extra money in the pocket (demand) and no goods on which to spend it (supply).

Pollster John Anzalone told the Los Angeles Times, “There is a psychology to inflation that is different from everything else, and it tends to drive how people view the economy because they experience it every day whether it is at the grocery store, gas pump or buying household goods.” This contributes mightily to Biden’s negative approval rating. Remember another president’s mantra: “It’s the economy, stupid”?

Now, it should also be said that some economists associate themselves with the theory that although polling reflects public sentiment, that sentiment may not adhere to the facts. Regardless of the economic facts, the anxiety about inflation could make inflated prices go even higher. A self-fulfilling prophecy, they call it. The so-called prophecy suggests that employees and those applying for work are fearful of higher prices and so threaten departure or not accepting a position unless higher wages are realized. That, in turn, increases costs for employers, who cover the cost by raising prices on their goods and services. And round and round it goes. You get the idea.

And now we have the holiday shopping season, putting pressure on supplies, and the new COVID variant, omicron, putting pressure on what otherwise is a recovering economy.

Here is our opinion on the matter, with a big “if.” If the omicron variant doesn’t again sideline consumers, which directly affects the improving economy (70% of the American economy is based on consumer spending), then we have a chance of even swifter recovery, with inflation abating by midyear to year-end. The thinking is that with attention to port operations, reducing backlogged shipment containers and injecting their content into retail markets; moderately increased wages encouraging people back to work in service-related jobs; freight shipments improving with more commercial drivers behind the wheel and being appropriately paid to hit the road; and the last of the stimulus money moving through the economy, then prices, fears and prophecies should subside.

We doubt inflation will be fleeting, temporary, brief or transitory. But it should start going down, as some recent pricing studies have already observed. In fact, gasoline prices at the pump have moderated in the last week or so, with natural gas prices, which lag oil, soon to decline.

So we adapt to current circumstances and look forward. Will Rogers also said, “Don’t let yesterday use up too much of today.”

Craig Douglass serves as executive director of the Regional Recycling & Waste Reduction District in Pulaski County.