This might stick for a while
Americans are feeling the pressure. Gasoline prices have surged while stocks have plunged recently. It’s no wonder many are fretting as we all get a daily dose of more uncertainty, higher inflation, and less economic growth. The term most often used to describe slow or negative growth coupled with high inflation is stagflation – something the United States has not experienced since the late 1970s.
Originally, our current run of inflation was dubbed as “transitory” in 2021 because of supply-chain bottlenecks. However, there are four main important reasons why inflation is likely to stick or hang around longer than many analysts believed. Starting from a much broader perspective, globalization has slowed significantly. COVID, Russia’s invasion of Ukraine, and fragmented international relationships around the globe have led to higher production costs.
Next, the net zero emissions push in advanced nations is not cheap. The BlackRock Investment Institute estimates that prices could rise by as much as 8% a decade if transition costs are fully passed on to households. Being in the energy industry, I think this estimate is low as energy prices could rise by double digits themselves without considering how higher energy prices will translate into increased cost for consumer goods.
The shrinking U.S. labor force is the next factor. Where will companies find the necessary workers to produce their merchandise. Our 2021 population growth is the lowest annual net posting on record dating back to 1776. To say it another way, the number of 18+ year old workers entering the labor pool is lower. Just in the United States that number is lower by about 500,000 annually. Coupled with the ongoing retirement of the baby boomer generation, the number of Americans available for hire is quite limited, which might push up wages for those willing to work, but that obviously also puts upward pressure on pricing.
Housing is also looking at a shortfall. Elevated demand from aging millennials is running up against a constrained housing supply. The housing bust of the Great Recession drove most small homebuilders out of business, leading to a supply shortfall of up to 2 million homes. It will take years for the construction cycle to close the gap. Between the overheated demand and rising mortgage rates, home affordability is on the decline for many.
All these current trends could mean inflation hangs around longer than analysts think, especially since many have never experienced stagflation to begin with. At YVEC, we are cognizant of the pressure consumers are under. Our rates have not changed since 2011 and we are conscious of working efficiently and effectively to keep that run of rate stability intact. While many external factors are beyond our control, we will continue to do everything we can internally to keep our rates steady. 11 years and running, we are intent on keeping the streak alive.
Brandon J. Wittman
Chief Executive Officer and General Manager