After an economic crash in the second quarter of 2020 as the economy was shut down to fight the COVID-19 pandemic, it was inevitable prices would rise as the economy rebounded and pent-up demand kicked in.
But inflation is increasingly becoming a concern for consumers. The Consumer Price Index rose 0.4% in September and is up 5.4% year-over-year, the highest increase since early 1991. Again, price increases were expected coming off the economic shutdown, but at some point, it’s painful for consumers and a drag on economic growth. And it’s a big problem for President Biden, who is taking a lot of heat over the inflation issue.
Several things are contributing to inflation. First of all, there is a huge labor shortage driving up wages, which are passed on as higher costs to consumers. The labor shortage was already becoming a problem before the pandemic as the huge baby boomer generation was moving into retirement. But it’s been made much worse by the pandemic as many left the labor force and for a variety of reasons haven’t returned. Enhanced unemployment benefits were blamed for encouraging workers to stay on the sidelines and no doubt were a contributing factor, but the expiration of those benefits hasn’t solved the issue.
Government spending is another existing issue made worse by the pandemic. The government provided a massive amount of stimulus to individuals and businesses to prop up the economy while it was shut down at the onset of the pandemic. Some felt the government should have provided even more stimulus to keep businesses shut down longer and workers at home to prevent the spread of the virus. But that’s just not sustainable. Pumping money into the economy to keep it afloat is now having an unintended consequence.
With the economy shut down at the onset of the pandemic, demand plunged and the economy tanked. A massive pent-up demand was created and when the economy reopened and business and consumer activity returned demand surged, but supply hasn’t kept up.
We’re seeing this in massive supply chain issues. To address them, Biden’s big move was to negotiate with the Port of Los Angeles and longshoremen to have the port operating 24-7. With tons of cargo ships floating in the ocean as they wait to be unloaded there, it’s hard to understand why the president needed to step in and why it took so long to take this obvious step.
Los Angeles and Long Beach are home to two of the largest ports in America. Forty percent of shipping containers that the U.S. imports come through those two ports, Biden said. The Port of Long Beach also recently announced plans to operate 24-7.
Having these two important ports operating 24-7 should help, but if there aren’t enough workers throughout the supply chain the problems will persist. Addressing the labor shortage needs to be the top priority.
