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Economist shares inflation insight for 2022

Economist Dr. Loren Scott presents his 2022-2023 economic outlook for Louisiana on Friday, October 8, at the Regional Commerce Center at the Port of Caddo-Bossier.

As the world economy begins its recovery from the COVID-19 pandemic, year-over-year inflation rates have reached their highest levels in over three decades.

Will this increased inflation be temporary or is it here to stay?

According to the U.S. Bureau of Labor Statistics, the annual inflation rate in the United States accelerated to 6.8% in November of 2021, the highest rate since June of 1982. This rate was in line with economic forecasts. It marks the ninth consecutive month for the inflation rate to stay above the United States Federal Reserve’s annual 2% target rate. As global commodities rally, rising demand, wage pressures, supply chain disruptions and a low base effect from last year continue to push prices up. This upward pressure was broad-based, with energy costs recording the biggest gain (33.3% vs 30% in October), namely gasoline (58.1% vs 49.6%).

Inflation also increased for shelter (3.8% vs 3.5%); food (6.1% vs 5.3%, the highest since October of 2008), namely food at home (6.4% vs 5.4%); new vehicles (11.1% vs 9.8%); used cars and trucks (31.4% percent vs 26.4%); apparel (5% vs 4.3%); and medical care services (2.1% vs 1.7%).

On the other hand, the rate of inflation slowed for transportation services (3.9% vs 4.5%). Excluding food and energy, inflation increased to 4.9% from 4.6%, the highest since June of 1991.

Economist Dr. Loren Scott says the increased inflation rates are caused by supply chain issues and are temporary. But, if the passing of federal legislation involves massive spending, then these increased inflation rates will be long term.

“If this is strictly due to supply chain issues, then it’s temporary. And, it will go away in the next 6-18 months. If it is not and if the passing of this federal legislation involves a great deal of federal government spending, then it is going to be longer term. And, it is going to be problematic. Then, the inflation rate is going to stay up and it is going to be up to the labor force to demand higher wage rates to at least keep up with inflation. And, I think firms are going to have to pay people more money because they can’t expect employees to work for a lower real wage,” said Dr. Scott.

Dr. Scott also stated that even with mortgage rates at an all time low, current inflation rates and the overall lack of pay increases are hurting consumers when purchasing goods. Thus, this is hurting the purchasing power of middle to low income workers.

“As long as inflation is low, and your wage rates are going up a little bit, at least then you are getting ahead from a real standpoint because the purchasing power of your money is going up. And right now, I think that’s not happening. And right now because of these supply chain issues, we’re getting some spikes in the price of all kinds of things (groceries, lumber, and other things). If your salary is not going up 5% a year (and for most people it isn’t), then your real purchasing power is going down. And, that is not good. That’s not good for anybody. Particularly, it is not good for the middle income to lower income folks. It’s just killing them. What we are seeing right now is not a good thing. And, it’s not something that you want to keep around a while,” said Dr. Scott.

Loren C. Scott & Associates Inc. is a 35-year old firm that provides economic consulting and public speaking services for a wide range of clients. Consulting activities include: impact studies, forecasting services, analysis of policy proposals, and general economic analyses. Dr. Scott is one of the 32-member National Business Economic Issues Council. This group has experts who cover international trade, Washington economic policy, retail trade, trucking, steel, chemicals, etc. Dr. Scott is an energy specialist on the NBEIC. Dr. Scott was on the Economics Department faculty at LSU in Baton Rouge from 1969 to 1998, where he rose through the ranks from assistant professor to the holder of the Freeport-McMoran endowed Chair of Economics. He is presently Professor Emeritus of Economics at LSU.

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