Living with High Prices
Terry H. Schwadron
Feb. 13, 2022
The monthly Consumer Price Index released showed inflation will be here for a while. But the headlines on television, newspapers and social media made it all sound like a surprise.
The only surprise is that anyone might have expected an entrenched, complicated beast like the U.S. economy to turn itself around in a month or two.
Just this weekend, the threats of war in Europe prompted immediate oil price hikes that will find their way to your local gas pump and the growing protests by truckers on the Canadian border, which some want to spread in the U.S., are interrupting more supply lines — again resulting in job interruption and predictably higher prices. Cold temperatures in the South are prompting higher prices for fruit and juice.
Indeed, the only practical value to draw from these reports was that there wasn’t a whole lot of difference month to month, though the price increases are reaching a larger shelf of products.
We’re still on a path for price rate increases that are the largest in four decades. Despite the myriad reasons, the attempted political line will be to nail It to the Biden administration for partisan purposes rather than to the lingering, global impact of Covid and a mismatch between supply and demand. Or recognizing that numbers for economy as a whole are strong — essentially Biden’s counter to inflation reports.
As was widely reported, prices jumped 7.5% last month compared with a year earlier, the steepest year-over-year increase since February 1982. Price hikes prices ranged from food and furniture to apartment rents, airline fares and electricity.
At a glance, some of those are controlled globally, like fuel oil, and some very locally, like rents. Some are more dependent on weather and transportation, like food, and some reflect some corporate decisions to raise rates to cover rising expenses or make up for lost sales.
Moreover, what seems most important here is that there are no easy solutions at hand for change anytime soon — and that these issues are beyond the political powers of any one president. Apparently, what will pass as “good news” in prices are reports when the pace of inflation eases by a tiny percentage point.
Compared With What?
Americans are treating price hikes as if we’re the only ones going through it.
My family members in Argentina report that what we’re seeing as an annual inflation rate is happening every two months there, and there are similar reports from elsewhere around the world. That’s not to exempt our efforts to control prices, just to provide a moment of perspective.
The Federal Reserve’s plan, a classic approach, is to raise rock-bottom interest rates in an attempt to make borrowing more expensive. But that will raise other prices, like home buying and appliances rather than used car prices.
The government could halt the Donald Trump-imposed tariffs on a variety of goods from China, say, immediately dropping prices for clothing. But that is unlikely, especially as ant-China attitudes are running high.
Corporations that all but monopolize various industries, like meat packing, where four firms hold the vast bulk of supply, could lower their prices. Again, don’t hold your breath.
The easing of Covid effects now being recognized in the Northeast, and starting to spread across the country, should rather have an ameliorating effect on prices by allowing more workers to return to jobs, businesses to plan, truckers to deliver backed-up goods and the like. But that, too, will be a relatively slow process.
Any other governmental actions will rely on divided members Congress to act on behalf of the country’s welfare rather than on their own reelection campaigns. Somehow it is far easier to simply assert that Joe Biden’s energy policies are encouraging the global oil producers to raise prices than to move more precipitously towards climate-sensitive realities around oil sales and prices.
Here’s the danger. We see our institutions counting on inflation abating somewhat on its own, even as some factors leading to price hikes are becoming more entrenched in the ways we do business, look at jobs and plan.
We lack trust, maybe for good reasons. But distrust has consequences, like higher prices.
We seem to lack an appropriate playbook for dealing at once with pandemics that run hot and cold, a job market that is booming, profits that are high, and spending for consumer goods that outruns the ability to supply those purchased goods.
So even as these monthly figures saw a drop in gasoline prices (did we do anything different from last month?), there was a sharp increase in monthly electricity prices.
We added 7 million jobs in the last year, and wages are up by 6%, but inflation is sapping those gains. It seems like economic whack-a-mole.
And that is being reflected in political polls that say the country is going in the wrong direction, with prices at the top of the lists about why.
The best explanation I’ve heard lately was from an NPR report that suggested that we had become overly used to slow growth and slow wage increases. The monthly adjustments were simply easier to account for.
“The pandemic economy has been anything but predictable, and new coronavirus variants have weighed on supply chains, raised workers’ exposure risk to the virus and complicated households’ ability to find child care,” noted The Washington Post.
In the meantime, perhaps we could lose some of the excited utterances about the measurements.