Inflation is going down; what about affording a dignified life?
There is plenty of reliable information from reputable sources, but the information we receive often brings half the truth or none. Let us take inflation as an example. According to the Bureau of Labor Statistics (BLS), from December 2020 to December 2021, consumer prices for all items rose 7%, the most extensive from December to December since 1981. Consumer prices for all items rose 6.5% from December 2021 to December 2022. The inflation rate declined to 4% in May 2023, driven by reduced energy prices.
Some economists insist that the current inflationary trend began with the tightening of the labor market in 2021 and the rise of wages. Seeing wage increases as the most important reason for rising inflation made the proponents propagate anti-labor union policies and reject the strive for wage increases. They also blame the government for helping those in need with expanded fiscal assistance during the COVID-19 pandemic. Is this the best explanation, and what is missing from such a narrative?
By breaking down the price increases into their three main components — labor cost, nonlabor inputs and profit markup — the Economic Policy Institute (EPI) provides much better evidence for how inflation came about during the pandemic. The EPI study looks at these three components from 2007 to 2019 and from the second quarter of 2020 to the fourth quarter of 2021 across Non-Financial Sector industries (NFC), which form 75% of the entire private sector. The study shows that from the second quarter of 2020 to the fourth quarter of 2021, overall prices in the NFC sector have risen at an annualized rate of 6.1%. It shows an acceleration of over 1.8% price growth compared with the 2007-2019 pre-pandemic business cycle.
Around half of this increase (54%) is attributed to a rise in profit margins. Labor costs only contributed to less than 8% of this increase. The surge in nonlabor inputs had a contribution of more than 38%. Adding the Russian invasion of Ukraine and an increase in the price of oil and gas brings another significant contributor to inflation in 2022.
The EPI study clearly shows that inflation during and after the pandemic brought a higher rise in corporate profits than wages and the tightening of the labor market. All we need to do to believe this explanation is to glance at the rise of oil companies and giant online corporations’ profits by hundreds of billions of dollars during this period.
We hear that inflation is coming down, and we can return to normal. The question is to define normal. Using the inflation rates from 2020 to 2023 and compounding the inflation rate during the last three years, 2020 to 2021, 2021-2022, and 2022 to 2023, you will see an increase of 18.5% in the consumer price index. Let us remember that the rise in food prices is much higher. This means the burden of having a lesser overall purchasing power is greater among low-income Americans since a significant proportion of their income is spent on food and other essentials. This is why we see the rise of food insecurity in many communities nationwide.
Only those whose wages and salaries have increased by more than 18.5% since 2020 may believe what they hear. Inflation may be going down, but high prices will prevail until those workers and their families experience an increase in their take-home pay that exceeds the compounded inflation rate.
Let us look at the unemployment rate. According to BLS June 2023 employment situation report, our current number of unemployed persons is about 6 million, which brings about a rate of unemployment of 3.6%. However, the number of people employed part-time for economic reasons is 4.2 million. These people work part-time but would like to be full-time. Another 5.4 million people who want jobs (discouraged workers) are currently out of the labor force. If these numbers are added, we will reach 15.6 million people who want to work or work more. This is about 9.5% of our civilian labor force.
Inflation may be coming down; the misery of millions of Americans is rising. We do not need the erosion of our environment for the profit of oil companies under the cover of becoming self-sufficient in producing dirty energy. We need more investment in our people through better education, health care, eradication of poverty and not expanding the military budget.
Increasing distrust in our economic system has a high political cost and paves the way for further erosion of democracy and the rise of fascism. We should do our best to avoid such dire possible consequences.
Jamshid Damooei, Ph.D., is the executive director of the Center for Economics of Social Issues and director of the undergraduate economics program at California Lutheran University.
This article originally appeared on Ventura County Star: Inflation is going down; what about affording a dignified life?
