No, inflation is NOT a political issue
U.S. workers enjoyed the most robust wage gains in decades last year. For the vast majority, it wasn’t enough to outpace inflation. But consumers are unusually willing to continue paying for increasingly expensive goods and services as corporations are about to report record profits. Inflation is NOT a political issue; it’s a worldwide issue.
Only workers in the leisure and hospitality sector saw real wages — pay adjusted for inflation — grow through last year. After accounting for soaring prices, the group enjoyed a colossal pay bump of 6.2% in 2021. Hotels and restaurants were hit hardest by the pandemic and related lockdowns. As the sector has struggled to pull workers back into the fold, firms have significantly lifted wages to ensure they’ll be adequately staffed for the return of in-person service.
So while most of us saw our bank accounts increase, the money in those accounts is not buying as much.
With headline CPI inflation still climbing on an annual basis, the latest report will vindicate Federal Reserve officials’ recent messaging and allow them to move more quickly to raise rates, end their asset purchase tapering program and, eventually, start drawing down the central bank’s nearly $9 trillion balance sheet, according to several economists. Just earlier this week, Fed Chair Jerome Powell said during a hearing before the Senate Banking Committee, “If we see inflation persisting at high levels, longer than expected, if we have to raise interest rates more over time, then we will.” Therein lies an important truth: only the FED can control inflation.
In the meantime, big U.S. companies are expected to demonstrate their health by reporting solid profits for the past quarter even as high inflation, wage pressure, supply chain disruption, and the Omicron coronavirus variant cloud the outlook. As earnings season kicks off this week, companies in the S&P 500 stock index are forecast to deliver year-on-year earnings growth of nearly 22 percent for the final three months of 2021, following an increase of almost 40 percent in the previous quarter, according to Wall Street estimates collated by data provider FactSet.
Corporate profiteering is a convenient political target — especially for Democrats who are defensive over climbing prices, with midterm elections approaching in November and President Biden’s approval rating falling. Economist Isabella Weber of the University of Massachusetts, Amherst, argues the pandemic has created opportunities for some companies to pad their bottom line — not just covering higher costs but expanding their profit margins as well.
Will the FED finally act? It may have to. Unemployment is at record lows, inflation is out of control, and voters are upset. Too many voters are upset about inflation, and they love to assign blame, but inflation is a global problem, not a U.S. problem. The Bank of England increased interest rates to combat a surge in inflation. It’s the first major central bank to do so.
No doubt the Republicans will use inflation as a talking point for the elections, but only people who need to assign blame will buy into that. Until consumers say “enough is enough,” companies will continue to raise prices to please shareholders.
Originally published at https://commonsenseandpolitics.com on January 12, 2022.