“Invest in inflation. It is the only thing going up.” That’s a famous Will Rogers quote that takes a humorous approach to a not-so-humorous force reaching into Americans’ finances. “What’s in your wallet?” Capital One asks. Whatever’s there doesn’t buy as much today as it did a year ago. Will Rogers aside, there isn’t much that’s funny about the effect of inflation. And it is having a very real impact on industry and individuals.
You don’t need to be an economist to know nearly everything is more expensive lately than it was prepandemic. Prices are rising, it seems, from the pump to the supermarket in a kind of financial future shock. If an inflation costume had been for sale this Halloween, it might have been popular, if a little pricey. Inflation is the robber that picks your pocket, the thief that leaves you with less buying power. But in some cases, despite all the difficulties, inflation also can be your friend. There are benefits to this bane on buying power.
There really is a silver lining to the inflationary cloud hanging over the country. Wages are rising, even if they’re not always keeping pace with inflation. And inflation brings other benefits as well, even if it may be a net negative.
“There are very few winners from inflation, because it can more broadly outpace any net fiscal gains that the average person would experience,” said Richard Murdocco, an adjunct professor focused on urban planning, land use and economic development at Stony Brook University’s Public Policy graduate program. “In general, any perceived rising tides in pricing due to inflation alone are artificial, because any additional dollars earned are simply watered down.”
Still, inflation does have some winners or benefits. Civilian wages and salaries rose 4.2 % for the 12 months ending September 2021 after increasing 2.5 % for the 12 months ending in September 2020. The Associated Press reported wages for the three months ending September 2021 rose the most in 20 years in “a stark illustration of the growing ability of workers to demand higher pay.”
Inflation can be good news, depending on which side of a transaction you find yourself. It can push up home prices, while making houses more expensive to build. “Inflationary pressures make Long Island, which is already a challenging environment for builders, even more so thanks to increased costs of materials, labor, and debt,” Murdocco said.
A weaker dollar makes U.S. products cheaper abroad, which can boost exports. If you owe money, the bill can become easier to pay as the dollar becomes weaker. “Holders of longer-term fixed-rate debts, such as a 30-year mortgage, may benefit in a very limited fashion,” Murdocco added.
The extent of inflation has become a major factor, as the annual inflation rate in the nation reached 6.8% in November 2021, according to the United States Bureau of Labor Statistics. That’s the highest since June of 1982 and the ninth consecutive month above the Fed’s 2% target.
The U.S. Bureau of Labor Statistics says inflation is being driven by rising commodity costs and demand, wage pressures, and supply chain disruptions. It comes as the economy essentially hits a reset, after being shut down.
The Consumer Price Index rose 0.8% in November, but when you break things down, you see some huge jumps. Energy costs were up 33.3% in November with gasoline up 58.1% and food up 6.1%, the biggest rise since October of 2008. Excluding food and energy, inflation increased 4.9%, the highest since June of 1991, but only slightly higher than rising wages.
Inflation doesn’t mean the economy is weak, amid many signs of strength. Both Nassau’s and Suffolk’s not seasonally adjusted unemployment rate was 4.0 percent in October 2021, compared to 6.0 percent in New York State and 4.3 percent nationwide. The number of private sector jobs on Long Island increased over the year by 16,500, or 1.6 percent, to 1,058,900 in October, according to the New York Department of Labor. The stock market has been strong, putting more money in many people’s wallets or brokerage accounts.
Inflation, however, can be perceived as, if not a tax, a force depleting purchasing power. Few people find it humorous when they pay more for the same product or service than they did a month or a year ago. Will Rogers, where are you when we need you? And rising costs beg the question as to whether and how the Fed and government will react, even if comedians may find some fodder for humor.
“For policymakers, the challenge will be blunting the impacts of inflation while at the same time maintaining private sector investment and public environmental protections,” Murdocco said. “While the localities are currently flush with cash from the federal government, this money won’t last forever.”
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