Afordability = Prices are Too, Darn High!

Inflation discussions are annoying at best and miss the point at worst!  Talk about stabilizing the massive increases in prices over the past few years is welcome, but it does not solve the problem.  Nor does it match up with the anxiety from the average family's current budget crunch.

The real issue is that PRICES ARE JUST TOO DARN HIGH for the cash in hand to pay them way too often these days.  This is the result of 20-30% increases in the 2021-23 period for food, housing, insurance, and other essentials with very limited corresponding increases in wages.  That clear fact that created a massive cost/wage gap will only be resolved if prices drop (a reasonable hope for many goods and ... to some extent a reality now for energy costs and some food items) and for wages to grow faster than price escalation for some extended period of time.

Wages are too low in many households to cover the largest cumulative price increases in over five decades. The important question is how can this mismatch be corrected.  Certainly tax and family benefits along with some of the achievements in drug cost reductions and an increasing selection of lower food pricing helps.  But, the little discussed hurdle is how much and when will wages increase fast enough to rectify the budget imbalance.  To get the average family back to the budget surplus of income over required living expenses they had in 2019 may take another three or four years of good (over 5% per year) wage increases and a leveling out of total inflation in the 2% range.  That 3% positive contribution should accumulate to the level required for the wage earners in the US to once again feel comfortable going to the store and paying monthly utility and housing bills.  Until that happens, the wage/cost gap, which may be still as high as 10%, cannot be discussed away with talk about how good some very welcome efforts have been in holding costs steady or even reducing others.

So, as painful as this realization is to acknowledge ... what is important is to talk about the actual situation to generate a level of trust that the government and industry leaders are sufficiently aware of their responsibility to reduce inflation and to foster strong GDP growth for the longer term.  Patience for all involved may be difficult unless there are better acknowledgements of the problem ... and some meaningful changes provided to bridge the cost - price gap for the next few years.  Efforts to keep energy costs low and to stop utility cost increases appear to be moving into place.  Food supplies and pricing still varies with some bright spots and some concerns. True help in controlling healthcare costs seems elusive even with some obviously good steps on drug pricing. And ... we all know housing cost improvements takes time and is subject to market forces now dominated by excessive local regulations and a lack of new housing supplies.

The complexities are hard to quantify into projections that provide the budget balance discussed and confidence that things will be better soon.  Maybe the best that can be done by leaders in the short-term is to clearly commit to staying on a path to assure increasing wages with productivity contributions at a faster and faster pace while working to increase the supply of family goods and services in a manner to reduce their big bite into budgets. This is not a picture that creates a smile in many faces.  However, it is one that should be understood as the best option for critical family budget rebalancing ... especially if the alternative is to go back to low GDP growth, mounting regulations, and policies that will drive inflation back up without any hope of wages increases to match!