Inflation Vs. Buying Power

Vast majority of people are immune to inflation and the low wage earners have actually seen an increase in their Buying Power.

It is obvious that the average inflation number of 7% is basically meaningless and it should be calculated for at least these major income groups per their consumption pattern and how the actual inflation experienced by these income groups can be vastly different, punishing the lower strata more severely than the others. I am surprised that the Government economists haven’t figured this out and all the so-called Think Tanks are oblivious to it. So, the average inflation numbers continue to guide their actions that are bound to be sub optimal.

The crescendo is deafening! The Talking heads, Pundits, News Papers and Financial Channels have a 24/7 preoccupation—Inflation! The Republicans are of course, trying to pin it all on Biden’s BBB [ Build Back Better] plan. With no response or counter argument from the Dems, it has pretty much rooted in the public psyche by now. By the way, these are the same Pundits who actually applauded Trump’s 2 trillion dollar, 100% deficit spending to give the rich a tax break. There was no concern about the inflationary effect then!

The whole country is so blindsided by this inflation talk that even the Dems have started apologizing and turning defensive, totally forgetting that indeed, it’s the Buying Power that counts and inflation is merely one side of the equation. Even the Pundits will be shocked to know the fact that a vast majority of people are immune to inflation and the low wage earners have actually seen an increase in their Buying Power, as their wage increases vastly overwhelm the rise in the price of bread, milk and gas!

Let’s go with the hard facts and numbers:

1] 70 million people on Social Security and Disability actually get COLA [Cost Of Living Adjustment] to match and negate the effects of rise in prices or “inflation”! Assuming at least half of them have other incomes to supplement the Social Security such as the pensions, 401Ks from the previous employment and may be even the current part time or full time jobs, those savings have been mostly in the stock market, garnering hefty gains and the wages of low wage earners have outpaced the inflation. They are thus immune to inflation and their Buying Power is always preserved.

In fact, it can be argued that the high inflation items like gasoline and food are a lower % of their consumption pattern, thus experiencing less than the average inflation. Since the retirees don’t go to work every day and have a family of 1 or 2 versus the typical American family of 4, the actual inflation hitting their pocket books is probably lower than the national average of 7%.


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2] About 15% or 45 million people earning 200K or more [plus the huge stock market gains] are not exactly driving around the town, looking for 2 cents/gallon cheaper gasoline. Their priorities are Gucci purses and new Mercedes, not a 10 cents discount on the bread. So, don’t feel bad if they have to pay $11,000 instead of $10,000 for the fancy fashion ware! The high inflation items like the gas, food and rent are certainly a lot lower % of their income than the national average of 7% per year. The actual inflation experienced by this high income earners doesn’t even register on the scale and not worth lamenting about.

3] About 10 million people have just quit work to take it easy or retire to enjoy life. Would they quit and forgo the entire salary if they were so worried about the inflation? They feel secure enough to quit working despite knowing all the facts about the inflation. They may not be “inflation proof”, but certainly not worried about it. They will opportunistically participate in the gig economy as independent contractors, gaining a flexible lifestyle.

4] Now we come to the most important part—the low wage earners, who are indeed living from paycheck to paycheck and any inflation in the basics does affect them. Here again, as President Clinton would have said, “it’s the Buying Power, Stupid”! Although the overall inflation last year was 7% [hence the COLA of 7% for 2022], some parts like gasoline and rents etc. have gone up a lot more. The fact is: 7% average inflation index is too superficial and it should be calculated for each income group based on their consumption pattern. For example, the inflation that touches the life of the low wage earners is far higher than the high wage earners, because of gas, food, etc. basics are a far higher % of their income than for someone making $300K/year. Although there is no precise data available on the inflation actually experienced by this group, we assume it could be as high as 15%.

However, what the financial “experts” are forgetting and the Republicans are knowingly ignoring is the fact that the low wage earners have received an average of 25% raise in the last 6 months! The average hourly wages just went from 11-12$/hr. to 15-18 $/hr.! That is the biggest raise in the history of mankind. Why don’t the Democrats know this is beyond comprehension, but the bottom line is: the Buying Power of the low wage earners has just gone up, not down! Try hiring someone at 11 $/hr. and everyone will laugh at you. Minimum 15 $/hr. is the new norm, with most employers like Walmart, Costco etc. paying 17-20 $/hr. and still having difficulty finding people!

 An interesting side fact is: the $15/hour minimum wage was the brainchild of none other than Kshama Sawant, a Marathi activist, originally from Pune! She championed the cause and made a fundamental impact on the American psyche and economy. Very few people have made such a profound impact on the American economy!

There are approximately 50 million such low wage earners and they are now sitting pretty compared to last year and likely to do even better in 2022, given the labor shortages. The 3.9% unemployment is likely to go to 3.5%, with the employers begging for people to come back, offering even more incentives.

5] Everything in life is never rosy and there are indeed about 20 million people—unemployed, underemployed and jobless for various reasons despite having skills because of the expensive child and eldercare—the real victims of the current situation. Inflation hits them the most, perhaps 20%, as the gas and food are a much bigger % of their meager incomes.

Here, the hypocrisy of the Right Wing reigns supreme. When Biden tried to do the right thing by providing for the Child Care assistance, they screamed bloody murder claiming that such thing will cause inflation! By the way, these same people cheered when Trump gave a 2 trillion dollar tax cut to the rich that was 100% deficit spending. The Judas types within the Democratic Party also opposed this, claiming that the parents will use this money to buy drugs! The inflation hit for these people is thus caused by the Right Wing, by thwarting Biden’s just and moral efforts to shield the underclass from inflation.

Bottom line, the inflation is only affecting the Buying Power of the bottom 10% people. This is caused by a heartless and cunning move by the Right Wing to create a permanent underclass that will do their menial jobs, as the childhood poverty and malnutrition does stunt the physical and intellectual growth. Republican Senate leader and an influential Republican leader just announced that he will cancel the school mid day meals program for 25 million poor children! They have already taken away their voting rights anyway and this is the last straw to create a permanently weakened underclass by making sure they suffer the worst consequences of the inflation.

It is obvious that the average inflation number of 7% is basically meaningless and it should be calculated for at least these major income groups per their consumption pattern and how the actual inflation experienced by these income groups can be vastly different, punishing the lower strata more severely than the others. I am surprised that the Government economists haven’t figured this out and all the so-called Think Tanks are oblivious to it. So, the average inflation numbers continue to guide their actions that are bound to be sub optimal.

It is well known that most of the factors causing inflation are a result of global phenomenon that the U.S. or any other Western nation has no control over-- like the price of oil and the disruption of the global supply chain due to the global pandemic and geopolitical events.  Even here, the Anti-Vax crowd bears a lot of blame and responsibility for this disruption. They refuse the vaccines and fall sick with Covid [serves them right!], taxing the medical and economic systems. That causes further disruption in the supply chain, with cascading effects like the shortages and consequent price increases. So, if there is a direct link between inflation, price hikes and shortages, hold the crazy anti-vaxxers responsible, not Biden!

Still, there is a lot that Biden and the Democrats can do to alleviate the harsh impact of inflation by striking at the root of the two major drivers of inflation—oil prices and the supply chain disruptions. It will take smart thinking and quick, decisive action to break the back of these twin monsters. Gasoline prices and the fear of shortages in this “land of plenty” are hard wired in the public psyche. Dems must immediately make overt Herculean efforts to alleviate these fears.

Oil Prices—immediately release 500 million barrel slugs of oil from the SPR [Strategic Petroleum Reserve]. An immediate impact of billion barrels on the oil market is likely to be effective in the short run, giving Biden the time to arm twist the domestic and OPEC producers to immediately increase their production without compromising the environmental regs. Trump already did this, just to play with the oil prices even when those were much lower. So why not do it in a real national emergency like this? Such action will inspire people’s confidence and reduce panic about inflation.


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Supply Chain Management—immediately deploy trained Army truck drivers to solve the critical truck drivers’ shortage, the weakest link in the supply chain. Trump did that to transport the vaccines and people will certainly appreciate such action. They have already done this with the Army and National Guard medical personnel, so this is a no brainer.

The 24/7 operation of the Ports came a bit late, but better late than never.

As to the shortage of skilled crane operators to offload the containers, there is an oversupply of such experienced, English speaking people in all Asian ports like Bombay, Karachi etc., working for 10-20% of the U.S. wages. Immediately bring them in as temporary skilled labor, just by doubling their salary. Trump is a master of cheap labor imports at his golf courses and hotels, so there is the precedent for such decisive action. So, why not do it in a real national emergency like this?

Even highlighting the fact that the Dems are acting decisively to solve the problem will raise consumer confidence and alleviate the people’s feelings of uncertainty and fear of inflation.

The big question is whether the Dems will wake up in time to act decisively and fight the impending disaster in 2022!

Below is the Summary Table that highlights the crux of this article:

Notes:
1. Average inflation is 7 %
2. The actual inflation numbers are a guestimate, no actual government data available.

- Sunil Deshmukh
sunild@aol.com 

(The author is a US-based philanthropist and corporate leader of Wall Street. He is the Originator of the prestigious 'Maharashtra Foundation Awards for Literature and Social work'.)

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