Monday, June 14, 2021

Random thoughts about inflation


Last week, the Labor Department said consumer prices were 4.99% higher in May as compared to May 2020. It was the biggest year-to-year gain since August 2008, just before the Great Recession’s crash, when it was 5.3%.


Five is high, but it is definitely not high enough. Talk to anyone who controls the purse strings – be it the head of a business or household. It doesn’t matter if you’re talking about inputs for a manufacturer or the grocery bills for a family, everything is up dramatically, in most cases double digits.


That’s what inflation statistics should reflect.


And, they would, if we were using previous methods of tracking it.


Referencing the website, if the government were still using the pre-1990 math, inflation would be just over 8%. Using the pre-1980 math, we’d be at 13%.


That unlucky 13 certainly seems more like it. It’s that painful.


So, why is the government telling us it’s “only” 5%?


Because, it makes for good politicking.


They’ll claim that the formulae were changed through the years to make the numbers more reflective of reality and less prone to volatility, but, really, it was done to keep us from getting restless and booting the powerbrokers out of office if we had a better understanding of how bad inflation really is.




While government is playing us while playing the numbers, corporations are doing the same in their own way.


Shrinkflation has always been a thing. That’s when companies shrink their packaging and still charge you that old price for what you they want you to believe is the same amount of food. You’ve seen it – or maybe you’ve missed it -- with cereals, pastas, canned goods, potato chips, pet food, and paper towels through the years. It’s a sly way of increasing profits as costs escalate…or increasing profits just to increase profits.  


This practice has gone into hyper-speed over the past 15 months. It’s been done to keep product on the shelves (such as making more toilet paper rolls, just smaller, to protect against hoarders) and to mitigate the impacts of inflation on food processors (the prices for vegetables and meats are out of control).


Despite this, grocery bills still remain 7 to 10 percent higher versus last year. You’re paying a lot more and getting a lot less.


Only recently have some talkers and media outlets (like Glenn Beck, the CBS Evening News, and Washington Post) brought this to light. Expect to hear more about this in the coming months, especially with many players like Campbell’s, Proctor and Gamble, Kimberly-Clark and others announcing price increases and other changes coming this summer and fall. 


Shop wisely.    



The Federal Reserve and officials in the Biden Administration have said that this wave of inflation is transitory. They believe, or want us to believe, that it’s short-lived and corrections will naturally come into play by year’s end.


Don’t buy it.


Manage your personal and professional budgets like these prices are here to stay and will be getting higher over the next eight to twelve months.


Once businesses and governments have consumers committed to higher prices and taxes there’s usually not much going back. Plus, there aren’t many policy tools and theories that can allow a return to the “normal” we knew not long ago.


And, if we began to feel deflation (which is when consumer prices decrease while purchasing power increases), there would be chaos on Wall Street and in the halls of Washington DC. The typical assumption with deflation is that the economy is contracting from an activity standpoint (rather than seeking its preferred level with prices). Were deflation to occur, it would lead to a plethora of economic policies that would, again, inspire more inflation.



One input to consumer pricing that is seeing a significant increase is the cost of labor.


Employers everywhere -- and especially in states like ours that have a comparatively-high unemployment payout and are also maintaining the $300 unemployment bonus – are fretting about the lack of workers because so many people have found unemployment to be a lifestyle and not a lifeline. So, they are pulling out all the stops, increasing starting wages dramatically.


Not to sound like a conspiracy theorist, but this was by design.


Lawmakers on both sides of the aisle knew they had to increase the minimum wage, especially with only 29 states and the District of Columbia having a minimum above the federal government’s $7.25 standard. Given the Fight for Fifteen and other movements of the past few years, they knew that, or something close to it, was where they needed to be.


But, who was going to be the bad guy to change the laws?


Republicans wouldn’t. Even Democrats would have seen their biggest supporters turn on them and, especially in southern states, they would have set themselves up for failure at the polls.


So, rather than changing it by fiat, they changed the de facto minimum wage by upping unemployment payouts and issuing stimuli (under both Biden and Trump, I might add), and increasing the Child Tax Credit which all force businesses to be more competitive with incomes doled out by other employers and these newfound government subsidies alike.

It’s a $15 minimum without all the political theater and loss of incumbency.




From the 14 June 2021 Greater Niagara Newspapers and Batavia Daily News

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