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  • Susan Spraker, Ph.D.

Higher Prices and Inflation-Part I: 6 Key Reasons

1. High demand for “stuff” during a period of shutdown and shrinking supply. In the U.S., to avoid another financial crisis, Congress and the Federal Reserve gave twice the aid to fight the financial devastation of COVID as they did to fight the 2008-2009 Global Financial Crisis. This easing of money to prop up a partially shut down economy both helped sustain family income and reduce borrowing rates. This significantly increased demand for goods, especially by those working from home with more time for online shopping. However, from cars to couches, supplies of goods have not kept up with buyers. Global production shutdowns and slowdowns persist across both the goods and the service industries: energy, shipping, rail, and trucking as well as food, retail, travel and healthcare.

2. A massive retirement wave and shift in worker job demands and life priorities was caused by the multifaceted effects of COVID. Between January 2020 and August 2021, about 1.5 million U.S. workers unexpectedly quit, including those laid off, forced to work remotely, forced to return to an office/plant, or forced to work under dangerous conditions. U. S. Labor Department November data shows 4.5 million Americans quit or changed jobs in that month alone. This has led to the tremendous labor shortage that has slowed both production, sales and shipping referenced above. Businesses are having to offer higher wages, salaries and benefits to recruit.

3. Child care issues have created a labor shortage and forced up wages. The Census Bureau reports that over 5 million people are not working because of this. Unable to afford child care, most are working mothers in low wage service jobs that shut down or whose hours have been curtailed. The risk of COVID for many minimum wage workers remains a barrier to returning to service jobs. This includes workers in what remains of the falling supply of child care facilities, further hampering job opportunities for families who need and can afford childcare.

4. Capital spending cuts of 75% from the peak levels on new projects by energy producers-oil, gas, coal, solar-hurt supply while global demand remained high, inflating both energy and food prices.

5. Worker absenteeism and death due to COVID continue to plague industry production, both in goods and services. Even with the warp-speed development of effective vaccines, 30% of the U.S. population remains unvaccinated, one of the largest proportions in the developed world. This group now leads the nation in community spread, worker absenteeism, hospital overrun, and deaths. This loss of family income prolonged government spending to support the unemployed.

6. U. S. immigration barriers. Visas issued to immigrants and temporary workers collapsed during the pandemic, with 700,000 fewer workers. This followed the pre-COVID policy that led to the lowest immigration since the 1980s, the combination driving up both wages and our grocery bills.

In April, in Part II of “Higher Prices and Inflation,” we will discuss further the reasons for labor shortage (Spoiler: It’s not that people don’t want to work.) and the then-current impact on the economy.

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