Hoosiers across the state are finding it hard to remain optimistic with rising inflation.
(BillionPhotos.com)
Over the past year, the country has seen unprecedented levels of inflation. According to the September Consumer Price Index, prices increased 8.2% over the last year. This level of inflation hasn’t been seen for nearly four decades.
Andrew Butters, assistant professor in the business economics and public policy department at the Kelley School of Business, said these increased levels of inflation put pressure on everyone.
“So households are going out trying very hard to kind of make ends meet and stretch their own resources and ability to maybe find deals and find other ways to make their incomes go a little further,” Butters said.
People are being paid more, too. But Butters said the rate of inflation is dramatically outpacing wage gains, which is some cause for concern.
“I think there's some real reason to be concerned about the current status of the rate of inflation,” Butters said. “Those wage gains are not making up for the cost of living increases that we're seeing right now.”
This is due to the missing equilibrium of supply and demand. Butters said there is a lot of demand, but little supply. If the equilibrium returns, it will bring inflation rates down quite a bit.
Even though the Federal Reserve has made every effort to raise interest rates and slow the economy, there are still missing pieces- and part of it is the Hoosier workforce.
“Labor force participation has still been really depressed,” Butters said. “Basically, we have like a bunch of missing Hoosiers that aren't in the workforce, like they were before the pandemic. And so hopefully, maybe some of those will return as well.”
“I think the one thing that is just as important is in terms of when we're sort of assessing the overall … state of the economy,” Butters said, “we also at least acknowledge that the unemployment rate is really, really low right now.”
And even though other economic factors are optimistic, there’s a lot of chatter about when inflation will return to “normal” levels.
“That is the million dollar, or the billion, trillion dollar question,” Butters said.
To economists, last week’s GDP report signals that the policy response the Federal Reserve has taken in terms of increasing interest rates has already begun to show up in the economy.
“The fact that that trend has started already is a good sign that basically the efforts that are being done in terms of policy responses, at least on the monetary policy side, are making their way through the economy,” Butters said.
Taking everything into account, he said there isn’t cause for worry yet.
“I know [there are] reasons to be very anxious and concerned about the economy,” Butters said. “But I think it's also just important that we keep that in balance within the other things that are clearly also going on in the economy.”
Butters’ prediction is that the equilibrium will be here sooner rather than later. He hopes to see it balance out by early 2023.
