Economist: Hike in cost of living to stay as inflation rises

Local

JOHNSON CITY, Tenn. (WJHL) – With prices on the rise in nearly every facet of daily life, one local economist told News Channel 11 it is here to stay.

Milligan University Economics Professor David Campbell explained that inflation is just a general rise in the price level.

“I like to think of it this way, one of the great 20th-century economists Milton Friedman said, ‘inflation is always and everywhere, a monetary phenomenon’. So, inflation happens because governments make too much money. And so, the way that has you think about inflation is that there is a pool of goods and services, like what we produce, right, of what we actually produce. And then, the prices on that are based on the pool of money that accompanies that. And so if the ratio of money increases faster than our money increases faster than the goods and services. We get inflation,” Campbell explained.

He said that the rate of inflation dipped in 2020 due to the pandemic.

“We were already in pretty good lockdown by May last year, and so prices had cooled off a little bit last year, maybe even fallen a little bit so the year over year comparison. I mean this year is definitely higher, we’re definitely seeing it but also, last year was a little bit lower than it should have been, and so that’s really what contributed to the big year over year,” Campbell said.

He added that inflation could simply continue to rise, it just depends on the rate of that increase.

“I don’t expect that the inflation increases to decrease at all like, they’re here to stay. The question is, do prices continue rising at this rate. So we’re already here, what everybody’s debating is are they going to keep rising this fast, or is it going to slow down,” he said.

Economists and retailers point the finger of blame to the pandemic stopping production for many goods and services.

“We started seeing shortage in materials to start with just things like Velcro, grommets, rivets, zippers, things that are in clothing and stuff in shoes,” said Dan Mahoney, president of Mahoney’s Outfitters in Johnson City. “Those little things started to disappear, because the factories over there shut down production completely, and they were shut down longer than we were. So that’s one thing was the individual components was the big shortage freight costs went up, freight costs have gone up between 20 and 40%. Anything coming west to east is paying almost double what it was last year at this time. So you can see the freight costs coming. Why are they going up is because there’s a shortage of drivers you see them everywhere. People are asking for drivers, they’re asking for trailers, there’s a shortage of trailers too.”

Supply chain issues remain a problem, Mahoney explained, even as production has persisted.

“So, things like that are causing ships, there’re ships sitting off the coast – the West Coast – right now that have been off the coast for 30 to 60 days, they’re just waiting to get offloaded. They can’t get off, there’s not enough stevedores we can’t handle the shipping at the time when everything needs to come in at the same time. So a lot of our stuff, we’re hoping, like all the other dealers around, we’re hoping that we’re going to get fall stuff on time. This year we got spring two months late,” he added.

Consumers are also unhappy with the price increases across the board.

These price increases, Campbell explained, is no longer to the discretion of retailers, it has become a necessity.

“The way I explain it is I say, look, the choice is not between high price and low price, the choice is between high price or empty shelf, and so how do you want to allocate goods and so that’s the reason nobody could keep toilet paper on the shelf last year,” he said.

Though Campbell said he does not expect prices to drop, Mahoney said he does.

“I predict it’ll start easing up and being over probably starting in October, because everything is trying to get out of the bottleneck now, three months, it’ll start coming back. You’ll probably see prices come down, you won’t see wages come down, you’ll see. You’ll see more drivers because a lot of people are getting trained in driving, and it’s going to turn around to where you’re going to see more supplies than you have demand for right now.”

Campbell, however, said the cost of unusual goods like computer and car parts that are in short supply right now should come back down in a few months, but your average daily consumables, the prices are here to stay.

Follow News Channel 11’s Bianca Marais on Facebook and Twitter for news updates.

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