The economics of inflation was quite simple back when I was studying at the University of Florida.
When supplies were short and demand was great, prices went up. When supplies were abundant and demand was low, prices went down. When supply and demand were in balance, the economy was in equilibrium and prices remained stable.
Pretty simple, but no longer a valid construct to analyze inflation.
It is important to admit that inflation is back. Acknowledging a problem allows the debate to move from denial to solutions. The Bureau of Labor Statistics creates the Consumer Price Index from a market basket of goods and services, commonly used by urban dwellers. The September Index was up by 0.4 percent over August and 5.4 percent for the prior 12 months. That means inflation is back but, not nearly as serious as the 10 percent numbers from the 1970’s.
Inflation takes many forms beyond the basket of prices in the index. Smaller size packages in the grocery store for the same price is a form of inflation. Diminished quality of products or slower service for repairs is a form of inflation. The many direct and indirect impacts of the COVID-19 pandemic have caused inflation. The supply chain shortages of imports cause inflation. Labor shortages caused by the “Great Resignation” and shutting down legal immigration cause inflation. Tariffs cause inflation. Natural disasters cause inflation. Government deficits cause inflation. Our individual inability to overcome the need for immediate fulfillment known as the “consumer culture” causes inflation.
If we can agree on the fact that inflation is back, let’s try to understand how we got here. It is easy to blame government deficits. Remember that deficits come from both short revenues and long expenses. Both major political parties and recent presidents share in the responsibility for deficits.
Human nature is also responsible for inflation. Amazon knows this best. Order something today and receive it tomorrow. Use our credit cards rather than save to buy. We could all make some reasoned decisions as to what we really need, in relation to what we just want.
The trick for our leaders is to avoid stagflation. That means a stagnating economy with inflation in prices. Our economy is booming, but we need to break the logjams. Settle the national debt-limit process, or do away with the limit altogether. The limit has had no impact on controlling spending which was its original intent. Get going on an infrastructure program. We need the transportation improvements including expanding the thru-put of our ports. Just think about this. Why can China and other competitors get the goods out of their ports but we can’t get the goods into out ports?
On a personal basis, we can all hold back on some wants until the supply chain issues resolve. We might also consider a little less panic buying every time a storm is 1,000 miles away or your gas tank is ¾ full.
Remember that the economy goes in cycles, and the highs and lows can be minimized with some intelligent personal planning.
Roger Carlton writes a bi-weekly column for The Graham Star. He can be reached via email, rcarlton57@hotmail.com.