Inflation Woes Hit the Middle Class

NASHVILLE, TN – Gas, housing, and food prices are up. So is the cost of anything with a computer chip in it. Utility bills are rising, too. Cars, appliances, and computers are more expensive than they were a year ago. Netflix is raising its monthly subscription fee to $15.49 next month.

“Part of what’s happening with inflation is against the backdrop of an already destabilized middle class,” said Alissa Quart, Executive Director of the Economic Hardship Reporting Project. 

For a decade before COVID hit the middle class was squeezed by medical care, housing, and college education. In 2019, 51% of Americans still described themselves as middle class but now many families are teetering economically.

A recent CR survey found 90% of consumers said they were paying more for gas. “You’re looking at the price going up as you’re putting in the gas so It’s kind of hard to ignore,” said Penny Wang.  She writes about money and family finances for Consumer Reports.

Wang noted there are big differences between prices at different pumps so using aps like gas buddy or keeping an eye out for which stations have lower prices can help. She offered a few tips to get you through the current spike in inflation:

1. It’s not a great time to buy a car but if you have to, look for fuel efficient models or carpool.
2. Regarding groceries, you can save significantly at private label outlets like COSTCO or Sam’s Club. Use loyalty programs if you regularly shop at a store like Krogers. Use rewards cards that offer money back. If you own a freezer, stock up when there are sales.
3. It’s not a great time to buy appliances, so if you can wait, don’t buy one. But if you have family or friends who could chip in on a new freezer, then sharing it will help two families on tight food budgets.

“You may find you don’t need something if you wait to buy it,” Wang said. Computer chip supplies are improving so you could find a better price if you wait a while.  Consumer Reports regularly advises on reliable products on sale for less and have a monthly column about when different categories of products tend to go on sale. Go to: https://www.consumerreports.org

How Long Will Inflation Last?

“There’s no knob you can turn that only reduces inflation without having consequence for lots of other things we care about in the economy as well,” said Josh Bivens, Director of Research at the Economic Policy Institute.

“Many of the policy knobs that people do want to turn to reduce inflation would actually have their own costs that would be imposed on families that are actually going to be at least as high as the cost that inflation is causing,” Bivens said.  

Some economists and pretty much all Republicans blame the Biden administration for causing inflation by putting too much cash in peoples’ hands during the last two years of the pandemic.

“There’s really weak evidence of that,” Bivens said. Thirty-eight members of the Organization for Economic Co-operation and Development (OECD) have all been hit by inflation despite the fact they did very different things to weather the economic disruption caused by COVID-19.

“We all did very different things in terms of fiscal relief. The United States, sort of strangely given that we are not usually a very generous welfare state, we actually did a lot of fiscal relief this time. But other countries did not. And yet inflation rose in every country. So there is something common and global and not related to fiscal relief that is driving this inflation,” Bivens said.

What is common in rich countries is the shock of COVID that caused extreme distortions on both the demand and supply side of the world’s largest economies. On the supply side, tankers were stuck in Asian ports for weeks on end and when they did arrive to the U.S. there were a hundred tankers ahead of them waiting to unload—all because of COVID.

“It’s been a society changing event. Of course, it’s going to have a huge impact on the economy. This big burst in inflation is one of the keys ways that impact is showing up,” he said.

Bivens said some policy-makers think we should kill the Biden administration’s Build Back Better agenda to stop inflation. But Republicans have pretty much done that already.

“That’s a bad idea for two reasons. One, there was nothing in it that was inflationary. This was not another stimulus package that was going to throw a bunch of money into the economy all at once. It was investments spread out gently over a ten-year period.

The Build Back Better Act had tax increases as well as spending increases. It was going to add no inflationary pressure and it had a bunch of things that would help with a lot of costs that really hurt family budgets, whether its childcare, whether elder care, it even had some housing stuff,” he said.

Bivens said a second bad idea to contain inflation is having the Federal Reserve get really aggressive and start raising rates very quickly to try and beat inflation back down.

“Fiscal policy is swinging from lots of stimulus in 2021 to no stimulus in 2022. So we are already slamming on the economic brakes on the fiscal side. To have the Fed slam on their brakes at the same time we could actually really slow the economy too much.

We’ve already gone below 4% unemployment. That’s amazing. That’s largely because we’ve done things like all the fiscal relief. That is what has really slung-shot the economy pretty quickly back to a better labor market,” he said.

Bivens said that by the middle of 2022, the supply chains will start to unkink and the economy will de-accelerate on its own.  He added the we have already started to de-link economic activity from COVID. In January omicron cases rose five times more than any other month and yet the economy added 470,000 jobs in January.

“The reason why I’m not worried that inflation will continue to mount is it just hasn’t spilled over and started anything like a wage-price spiral. The sectors seeing really big price increases are not the sectors seeing strong wage growth. There’s no evidence so far that we really have inflation spreading from wages back into prices.

The good wage growth is in leisure and hospitality, and retail, and restaurants. The really big price increases are oil, gas, and durable goods,” he said.