New Orleans Inflation is scary to people, especially if you are now living in Argentina or Venezuela, where prices are rising in double digits on a regular basis. In the United States, it’s a mixed bag, depending on where you stand, and who you believe.
There’s no question that prices are currently going up, partly because of supply chain issues and pent up possibly post-pandemic financial activity. Of course, the supply chain problems that are causing prices to rise also mean that you can’t obtain the goods ordered, which eventually will also tamp down demand.
Most economists, including those in the Federal Reserve and the White House, argue that this is a temporary spike, and should even out by the end of the year. Certainly, we hope so.
Who wins and loses?
The Social Security Administration announced a 5.9% increase for 2022, the highest in 40 years, so retirees shouldn’t be too badly hurt. The more your income is fixed though, the worse the burn.
Shortage of workers and high quit rates are pushing wages up. The Labor Department reports that generally, wages across the board are up 4%. If inflation is 5%, that means workers are going back, while moving forward. Union workers who are still fortunate enough to have cost of living adjustments (COLA) in their contracts will be all right. In fact, if this really is a spike, the ability to grab more in wages right now might still put workers ahead of the game by next spring, if they can hold onto the higher wage rates. This also might put some much-needed pressure on finally raising the federal minimum wage. Workers in states with a minimum wage with an automatic increase based on an increase in the consumer price index will also be OK.
Families getting the supplemental child payments might be ok as well, especially if they are able to bank any of the payments as surplus money or savings. Homeowners usually are alright with some inflation, especially given the current housing shortage everywhere, because home values tend to increase with some inflation. Families in rental situations need to hope they have year-long leases to get past the bump.
Families without assets are the ones facing the squeeze, as are those on benefit programs, like TANF, where states might not have indexed the benefits. It is at this level that the federal administration will have to take decisive action if the spike in prices creates an extended gap to income because that will have to be bridged or our gains in reducing the poverty rate could be quickly erased.
Of course, for the rich and well-to-do, Forbes says investors don’t have much to worry about and many, heavily in the market, root for higher inflation. Even with some dips and dives in the stock market, there have been significant gains throughout 2021, which will be hard to completely erase. Interest rates might rise, which will hurt, but we’ll see for how long.
As usual, while they are at a win-win, we are somewhere between winning and losing, forced to watch the clock, and hoping we can outrun this wave of inflation and still be on dry land on the other side if it comes quickly.