At the end of last week, the U.S. Labor Department issued a startling report that inflation rose at an annual rate of 6.8 percent in November, representing the highest the inflation has been in 39 years. November was the sixth straight month that inflation has been above five percent.
Most economists agree that this inflation - which is unprecedented over two generations - is primarily caused by supply-chain issues brought on by Covid shutdowns to national economies across the globe over the last eighteen months. Those pressures have been exacerbated by the free flow of government stimulus money saturating the market which has driven demand for goods and services far beyond what is available from suppliers.
The result is that when you go to the grocery store or the gas station, you are paying significantly more than what you were paying last year.
And while this is clearly an economic policy problem, it is also a workplace problem for most American workers who are watching prices rise while wages do not keep up.
As many of you know, I make a good part of my living by negotiating wages and benefits for labor unions. Contract negotiations in a union environment is part art and part science. The science part comes into play by looking at real data showing where the market is on wages and benefits currently. We also try to use that data, along with historical references to figure out where wages and benefits might be headed in the future as we negotiate contracts that will last three to five years from today.
And what we are seeing in our bargaining, at least over the last year, is that employers have not recognized that labor costs are going to be on the rise for the foreseeable future.
When we learned over the summer that inflation was on the rise most employers viewed it as a short-term problem that would resolve quickly once Covid vaccinations became prevalent and the supply-side market returned to normal.
However, as we have seen, vaccination rates internationally have not come close to the seventy-to-eighty percentage rates we are seeing in the U.S., and, as a result, Covid continues to wreak havoc on international suppliers.
We can conclude then that this inflation that we are seeing is likely going to continue well into 2022. And given the steep rise in November, we may soon be wishing for the days when inflation was only running at five percent annually.
The upshot is that workers are going to start feeling the pinch in their pocketbooks in 2022 if wages do not keep up with inflation. From a household standpoint, folks are going to wind up cutting back on spending which is going to hurt employers and possibly lead to recession.
The spiral is headed downward, and 2022 is looking like it is going to be a tough year for lots of households even if we are able to finally smother the pandemic.
I would expect that over the next year we are going to see wage increases start to inch up for lots of workers. While it would be unreasonable to expect wage increases matching inflationary rates, it is likely that wage increases are going to pass the three percent annual threshold in 2022. That type of outcome will probably be necessary in order to keep the country out of recession.