Unfortunately I think I’ll be writing a good bit more about inflation as we roll into the fall; it seems as if there are daily articles in most news sources about higher prices. It’s clear to me that eventually we’ll have much higher prices, but that could still be years away. Next year, three years, who knows? But nevertheless today we are dealing with higher prices. The Fed is trying to take solace that they are transitory, “base” effects from last year’s lower pandemic prices. Others (including commenters on this blog) suggest that these are still supply chain disruptions that will increasingly be worked out. I think both are valid points, to a degree.

Yet the price increases seem widespread, and underlying commodities that really matter (e.g., Doctor Copper) suggest higher prices in the future. Consumer expectations of inflation are significantly rising, with the NY Fed survey showing consumers expecting almost 5% inflation next year. One of the significant economic lessons learned from the 70s global “great inflation” period is how hard it is to wring inflationary expectations out of an economy once they become embedded. And yet the Biden Administration is insisting that we need $$$$Trillions of additional demand injected into the economy. Absolutely stunning economic malpractice.

There are signs up for low-skilled labor all over the Dayton region (and apparently nationwide from my own summer traveling survey). $13+/hr seems to be the going rate around here, with signing bonuses often accompanying. These higher wage rates are starting to bake into the price structure, as the source of the wage increases is not increasing productivity but rather increased stimulus of demand–both fiscal and monetary at unprecedented levels.

Inflation became real to me yesterday, when I walked into the local National Tire and Battery shop. I normally do most of my own car work from long habit and practice, but I needed to have springs installed on struts, and compressing springs can be somewhat dangerous if not done correctly. Shops that do this all the time could likely knock it out pretty quick, and even w/shop prices be somewhat reasonable. One forum I looked at suggested two front springs could be done for $50. But when I go in, there is only one guy that apparently does this, he was booked tomorrow and off Wed, but could get to it on Thursday. He estimated that it would take an hour+ of shop time, and the shop rate was $125/hr. I was stunned. Wasn’t it just yesterday that high shop rates went to $80/hr? And yes, there were help wanted signs in the glass. I left the store and drove a block over to Advance Auto for the free tool rental, and picked up the spring compression kit, which I’ll get to after work tonight. If you don’t hear from me in the future, you’ll know a spring sprung and led to my untimely incapacitation!

Once you bake in higher wage rates, its really hard to lower them. As we learned in the Great Depression and subsequently, wages are sticky in the downward direction–easy to go up, really hard to go down. As F.A. Hayek suggested, the Fed now has a tiger by the tail.

So what higher prices are really hitting home to you?