by Paige Terryberry
Senior Analyst for Fiscal Policy, John Locke Foundation
You have probably noticed inflation in your daily life with skyrocketing prices at the gas pump, grocery store, and your leasing office. The purchasing power of your dollars is decreasing. This in turn, bleeds into other areas. Here are a few, more obscure ways you may feel inflation’s pressure:
Inflation can essentially erase a pay raise as the rate of inflation surpasses your extra earnings. Due to the increased supply of money, some companies have increased wages to attract workers. North Carolina’s average hourly pay rose 6.4% over the past year.
Unfortunately, however, not everyone’s wages keep up with inflation. In particular, low-skilled workers’ wages will typically struggle to keep pace with the rising cost of living.
Inflation nationally has pressured some to demand changes at the state level that parallel recent, federal adjustments.
At the federal level, the Social Security Administration last week announced a 5.9% increase in cost-of-living adjustment (COLA) benefits to approximately 70 million Americans beginning in 2022. The change is due to inflation as COLA calculations are tied to the rising Consumer Price Index.
We are still waiting to see if state retired workers receive increased pension checks although some retired worker groups have demanded them. North Carolina’s budget, which may address this issue, is still undergoing negotiations. Gov. Cooper’s budget proposal, released earlier this year, had a 2% increase to state retiree benefits in addition to a 2% bonus for each of the next two years. The House budget proposal included a one-time bonus, while the Senate proposal did not include any increases.
Businesses are confronted with higher costs of doing business as the price level rises. They may save money by offering fewer discounts and spending less money on advertisements and promotions. General Mills cereal, for example, is offering smaller discounts, while some grocery makers are reducing store displays to cut back on spending, as reported by The Wall Street Journal.
Some companies may put a stop to certain items to reduce costs. Restaurants, for example, are condensing menus. The number of menu items at the top 500 full-service restaurants has declined by 20% since the first quarter of 2020 as compared to the first quarter of 2021, according to an article published in The Wall Street Journal. Companies are saving money by dropping less popular items hoping to profit from the fewer best sellers.
The inflation observed today is no surprise. Massive government spending (and printing of money) to combat the downstream effects of COVID increased the quantity of money in the economy, leading to too many dollars chasing too few goods. As Milton Friedman stated, “Inflation is always and everywhere a monetary phenomenon.” It is a phenomenon that harms the poor most as they spend higher proportions of their income on living costs like groceries, gas, and energy bills, which are leading the way in the rising cost of living.