Opinion: What’s the future of inflation?

Larry Lindsey
Conservative Opinion

Larry Lindsey

President & CEO, The Lindsey Group
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Certainly you’ve noticed that life is more expensive and countless jobs are going unfilled. Are you wondering why this is happening and how it’s going to play out? It’s no coincidence that we are experiencing this inflation and tight labor market at the same time. The two factors are closely tied, linked by paychecks. When you look at the numbers in the latest employment surveys along with history, you’ll understand what’s going on and what’s ahead in the days to come. Plus, I’ve got a tip for you if you’re looking for a raise.

There’s a lot of debate today in the country particularly at the Federal Reserve, which controls the amount of money in circulation, about whether or not the inflation we’re now having is a transitory factor, whether it’s going to be with us for a while. Economic history, and frankly common sense, suggests exactly where to look for the answer. 

And that is wages. How much we Americans expect as far as a raise goes in order to keep doing what we’re doing. We want to keep up with inflation. And so if we’re falling behind, the odds are we’re going to go to our bosses and demand a raise. 

Well, let’s look at some of the data in the last seven months.

In other words, since the start of this year, wages have gone up. They were going up at a 4.2% annual rate. The problem is prices have been going up at a 6.3% annual rate. 

So even though we’re getting more in our paychecks, we have less leftover by the time we pay all of our bills. And that means we’re going to go to our bosses and start asking for more money.  

By the way, it’s very unusual for wages not to keep up with inflation. So the last seven months have been quite different from most of American history since the end of World War II.

Okay, well, what will our employers say when we ask for more wages? 

Well, the fact is they’re desperate to hire people. 

The National Federation of Independent Businesses, which is a small business group, surveyed its members and found that half of them have open positions that they can’t find someone qualified to fill. That is the highest number since the survey began 48 years ago.  Half of those businesses can’t find a worker to fill a job that’s open.

Big businesses say to other surveys that finding qualified workers is their biggest problem.

And then there’s the big picture. 

The Bureau of Labor Statistics did a survey on how many job openings there are in the country. And last month, that number was 10.9 million.  In a different survey, they say how many people are unemployed. And the answer to that was 8.4 million. In other words, there are 2.5 million more job openings than there are people out there who are unemployed.

Well, why can’t those unemployed people find a job?  Well they can, but they probably can’t find a job at the rate of pay that they want in order to go to work.

And so we’re already seeing the dynamic where people are going to have to start asking for more pay, and employers are going to have to start paying more in order to fill those positions. 

And then there’s one other factor that’s going to start creeping in.

How do you get a raise from your boss? 

Well, your boss isn’t going to come around to your desk, pat you on the back, and say here’s some more money. Oh, they do that once a year just to make you feel loved, I guess, but the way to really get a wage increase is to ask your boss, and if he doesn’t give you enough, you give your notice, and then see what he says.

In fact, I have a little anecdote about that. Um, my son got a 4% raise. He put in his two weeks notice and the boss came back with at 19% raise if he’d stay. So that’s how you actually get a bigger raise.

And the numbers show that people who don’t ask for a raise, people who are staying in their same jobs, getting one and a half points less than the average, which means people who do change jobs are getting double digit increases. That’s where we’re headed in our labor market. 

If employers want to fill the positions to get someone from another job or hire someone, new wages have to go up a heck of a lot. 

Well, if wages go up, the cost of producing things goes up and employers don’t just sit there. They pass that on in the form of higher prices. 

So the answer to the question, “Is inflation transitory?” is quite simple, and it’s found in the labor market. The answer is no, we have inflation, inflation is accelerating. It’s not going to go away. In fact, it’s likely to accelerate some more.


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