1 What are the drivers of today’s inflation?
A: As of early November, consumer prices across the country have increased at 8.2% on an annual basis. Major drivers of price inflation include food, energy (especially gasoline and fuel oil), electricity, gas delivered by utilities and transportation services.
2 The Bureau of Labor Statistics reports productivity plunged by the sharpest rate on record going back to 1947. How much is this drop because of coronavirus and worker ennui, i.e., “quiet quitting”?
A: The U.S. labor market experienced significant, numerous changes since the pandemic began, including a decrease in the size of the labor force, a shift toward increased remote work, and changes in attitudes toward the workplace. These, mixed with other changes in the economy, were involved in the decline in productivity earlier this year, although productivity slightly increased during the third quarter of this year. Hopefully, the decrease from earlier this year was just a blip on the radar.
3 What can legislators do – or what shouldn’t they do – in order to drive down inflation?
A: Higher interest rates and other restrictive policies by the Federal Reserve are the current prescriptions to combat inflation. This should help to slow the growth of the money supply and credit, decrease demand across the economy, and help prices to stabilize.
Control of government spending should also help inflation to stabilize.
4 What should consumers look for in the next six months?
A: Since the inflation rate continues to remain high, consumers should count on increasing interest rates.
In fact, the Federal Reserve is projecting increasing interest rates at least through 2023.
5 The Federal Reserve wants a 2% target on inflation. What must happen for that to be realized?
A: Prices will have to stabilize.
This will have to happen through a decrease in spending across the country, a decrease in the money supply and credit, an increase in interest rates, or a combination of these factors.
This is not a fast process.