Category: Inflation

The smartest people in the U.S. say that a wage-price spiral cannot occur. “Giving Workers a Raise Is Not Going to Make Inflation Worse” (New York Times, October 2):

At the moment, wages are rising faster than inflation, which means that “real,” or inflation-adjusted wages, are rising.

“There is almost no evidence” that wage increases lead to inflation, Rosenberg wrote. His firm conducted a statistical test (called Granger causality) that found inflation causes wage increases, but not the other way around. He predicted that rather than passing along higher wage costs to customers, companies would be forced to swallow them and accept lower profits.

In other words, the Science of Rosenberg and Granger proves that cars and bicycles sell for the same amount because higher costs for producers don’t shift the supply curve and change the equilibrium price.

Here’s the latest from our local schools:

The School District of Palm Beach County reached an agreement with the Palm Beach County Classroom Teachers Association (CTA) that will give an average 7% pay increase and one-time 3% bonus to instructional employees. The agreement was approved by the School Board during its Special Meeting on October 4, 2023. The significant raise demonstrates the District’s commitment to fairly compensating teachers for their hard work and dedication to students.

There is no possibility of the price of property tax going up to pay for this, according to the New York Times.

September 2023: Hollywood agrees on a new, higher-paying, contract with writers; “an 18 percent pay bump and a 26 percent increase in the base rate with which residual payments are calculated” (Washington Post)

October 2023: “Streaming services keep getting more expensive: all the latest price increases” (The Verge).

Received October 10, 2023, regarding the supply for our 10-year-old crack addict:

Also from October: “Ford Already Covering UAW Wage Increases With Huge 2024 F-150 Price Hikes”.

July 2023: “Disneyland Workers Could Get Nearly $20 an Hour Following Appeals Court Ruling”.

October 2023: “On the most popular days, though, Disneyland is raising prices by more than 8% to $194. For a five-day ticket, Disneyland raised prices by nearly 16% to $480. The park also raised the price of various add-ons. Disneyland’s Genie+ product, which gives customers access to shorter lines, will now cost $30 a person, up by $5. For five-day tickets, the price for Park Hopper, which lets customers go between Disneyland and Disney California Adventure Park on the same day, also rose by 25% to $75. Disneyland also raised the price for parking and other products, including its Magic Key annual passes.” (Wall Street Journal)

Readers: What else have you seen that could be considered evidence for my discredited theory that a wage-price spiral could occur?

The good news: if your own income isn’t keeping up with inflation, you can save money by shopping at Costco. On a September 25, 2023 visit, they were offering a bottle of Champagne for $4,500, including a free glass.

RDU is building a new 10,600′ runway. It will cost “more than $500 million” (source) and the project will take five years (completion scheduled for 2028). The runway being replaced was built in the 1980s. I can’t find anything about how much it cost to build.

Back in 2019, this public works project was supposed to cost $350 million (source). So there has been inflation of 43 percent over a four-year period (official CPI from the BLS is up 21 percent).

Related:

• Cost to rebuild three conference rooms at the White House: $50 million.

We’ve been in our house for a little over a year and it is time to order some additional furniture. I spent a little time on the web sites from which I ordered a 1-1.5 years ago and, for those products that are still offered, compared prices.

A chair that I ordered a year ago for $179:

The same chair today, offered at $199:

Up 11 percent in our world of 3 percent (official) inflation.

How about IKEA? Here’s a shelf that we ordered in May 2022 for $200:

It’s now $260. Inflation of 30 percent in less than 1.5 years.

The $50 chair?

Now $65, also up by 30 percent:

Americans’ perception of inflation certainly seem to be higher than the official CPI numbers. Workers demand 30 percent raises (and get them, in California) when Pravda says that inflation has been less than 10 percent and is now down around 3 percent. Previously, I’ve wondered if part of that is due to delivery times stretching out into the next Ice Age: Is inflation already at 15-30 percent if we hold delivery time constant? The quoted price doesn’t go up more than 20 percent, but you might not get your refrigerator for a year or more (a Sub-Zero fridge that was formerly available in 7-10 days now takes 12-15 months). A Cirrus SR20 is priced at more than double what we paid for our 2005 SR20 from the factory, but delivery time is 2 years instead of 3 months. What’s the actual price of something that doesn’t exist?

After talking to HVAC contractors, a regular event here in Florida, I’m wondering if this is also partly due to repair parts shortages. A/C systems that were designed to last 12-14 years are being scrapped at 5 or 6 because essential parts (not as “essential” as marijuana in Maskachusetts or California, but required for cooling) are theoretically available, sometimes for free under warranty, but practically unavailable (lead times of 8-12 weeks, which is no solution at all in a South Florida house).

For the HVAC inflation that does make it into CPI, here’s a tracker page from a contractor (the Trane section because that’s what came with our house). The prices went up about 5% in May after going up 10% in January after going up about 4% in September 2022 after going up 9-18% in May 2022….

Related:

• more than 20 percent raise for streaming video from Disney (WSJ, yesterday)
• “Price hikes loom for consumers with the loss of Yellow trucking” (NBC, two days ago): After the shipping giant filed for bankruptcy, its competitors have already indicated they will not match its low-cost pricing. The U.S. just lost as much as 15% of its small-batch trucking capacity — and consumers are likely to feel the effects in higher prices as the holiday season rolls around.

The BLS will release official CPI data tomorrow. Last month, inflation was whipped, with the index only 3 percent higher than in June 2022. From state-sponsored PBS:

(in other good news, the chocolate ration has been increased to 20 grams per week?)

Let’s look at the actual index:

Notice the strange little peak in June 2022? I am thinking that this peak might have been measurement error that made last month’s number lower than reality.

There have been a lot of wage increases lately. “Pay to Rise as Much as 40% in Deal Reached by United and Pilots” (NYT), for example. I’m a believer in the wage-price spiral (though the great Harvard economist Mankiw is quoted in Wikipedia saying that it is transitory). We’ll all be paying more for shipping soon, but it is unclear how much more: “FedEx pilots reject 30% pay hike proposal, but a strike isn’t imminent” (CNN).

During a recent trip to Pasadena, California, the Hilton front desk informed me that most of the workers might walk out on strike at any moment (see “California pol urges Taylor Swift to postpone LA concerts over hotels strike — days after attending her show” (New York Post)). In-n-Out Burger in Fisherman’s Wharf is offering $22/hour as a starting salary:

(good news for San Franciscans who previously enjoyed fentanyl in parts of the U.S. where fentanyl dealing/use is illegal: the job is open to those with “arrest and conviction records”)

The inflation rate in Berkeley is literally infinite. A paper bag that previously cost 0 cents is now 25 cents:

My guess for tomorrow’s number… 4 percent.

Readers: What are your guesses?