The Upward Downward Spiral

The Labor Department reported earlier this week that the Consumer Price Index–which attempts to quantify prices of a broad swaths of goods and services in the American economy–increased 0.9 percent in October, resulting a 6.2 percent increase in the CPI since last year. That’s the highest annual increase in the CPI in more than 30 years, since December 1990. And the CPI increase measured in some metropolitan areas was even worse: the Atlanta Journal-Constitution reported, for example, that the CPI increase in that area was 7.9 percent, the highest increase in any city in the country.

It’s pretty clear that inflation is back as an area of significant economic concern. Just hearing that word sends a shudder of dread through those of us who lived through the high inflation period of the ’70s and early ’80s and the belt-tightening days when the Federal Reserve took draconian steps to halt the inflationary spiral and wring the constant price increases out of the economy.

The big question right now is just how persistent the inflationary spiral will be. The Federal Reserve says we’re in the midst of “transitory” price increases, but the most recent CPI data has increased market skepticism of that rosy outlook. The data showed price increases pretty much across the board, and not limited to more volatile areas that can react to temporary shortages, like fuel and food. Even if food and fuel prices are stripped out of the analysis, leaving only “core CPI” to be considered, prices are rising at a 4.6 percent annual clip, which is the highest “core CPI” rate since August 1991.

Even worse, the Labor Department reported that the CPI surge meant that real wages, after inflation, fell 0.5 percent from September to October. That’s a familiar scenario for those of us who lived through the country’s last big inflationary period, in which wage hikes and salary increases never quite seemed to catch up with the CPI. In those days, the upward spiral in prices put many people into a downward spiral in terms of their personal finances and debt situation and really hurt seniors and others living on fixed incomes.

Perhaps the Fed and Treasury officials who reassuringly contend that the inflation spike is temporary will turn out to be right–but what we’ve been reading about “supply chain” seems calculated to feed into more price increases, not less, and shortages that the law of supply and demand dictates will produce higher price tags as we head into the holidays. We need to do something about inflationary pressures and fix the supply chain problems before we find ourselves trapped in another upward-downward spiral.

Ringing The (Taco) Bell

This year, Taco Bell is going to be experimenting with a new approach to recruiting qualified restaurant managers:  in certain labor markets, it has announced it is willing to pay an annual salary of $100,000 to managers of company-owned Taco Bell stores.

taco-bell-kiosks-digital-strategy-qsrThe Taco Bell initiative is a response to a very difficult labor market for employers.  With the current unemployment rate at historic lows — the product of a strong job market and lots of aging Baby Boomers moving into retirement, among other circumstances — there just aren’t many good candidates out there.  So Taco Bell is going to test, in certain markets in the Midwest and Northeast, whether paying a $100,000 salary brings in a better crop of candidates.  That represents a significant increase over the current starting salary for Taco Bell store managers, which ranges from $50,000 to $80,000.

The Taco Bell manager initiative isn’t the only evidence of a tight job market and wage pressure.  The article linked above notes that other companies operating in the fast-food restaurant market — typically the classic source of low-paying, entry-level jobs — are reporting wage pressure affecting their margins.  Just this week the Bureau of Labor Statistics reported that in the fourth quarter of 2019, “median weekly earnings of the nation’s 118.3 million full-time wage and salary workers were $936, an increase of 4.0 percent from a year earlier ($900).”  The BLS statistics show wage growth in 2019 above the rate of inflation (which was about 2 percent) in all age categories except workers between 55 and 64, with workers in the 25 to 34 age range showing especially strong wage increases.  And the BLS wage statistics indicate the labor market is particularly good for women, with median weekly earnings for women in 2019 up by 6.2 percent.

Imagine — making a six-figure income as the manager of a Taco Bell!  Your parents never would have thought it was possible.