Peach Tree Times

The pains of inflation are felt in nearly every American economic sector as the rising cost of goods affects the amount of money that working people take home.

Real wages, or the value of the money that employees earn at any particular time after taking inflation into account, are falling nationally. According to the U.S .Bureau of Labor Statistics, nominal compensation for all U.S. civilians has risen by a 2.8% annual rate.

At the same time, because of inflated prices, real compensation is down 2% since before the COVID-19 crisis began. Prices rose faster than wages, leading to inflation-adjusted compensation falling for the past three months below its December 2019 level.

Jason Furman, former Barack Obama-appointed chairman of the Council of Economic Advisers, and a current Harvard economist, says inflation has eaten up all of the wage gains for Americans going back to the Trump administration. In June 2021, real compensation fell 0.7% below the levels of December 2019, and 2% lower than its pre-pandemic trend.

Inflation consequences are multifaceted for residents of Georgia, explains Georgia Public Policy Foundation Director of Policy and Research Chris Denson. Georgia's small business owners are struggling to hire and retain staff, further crippling the supply chain that continues to suffer pandemic-related issues, he says. 

The foundation describes itself as a free market public policy thinktank that promotes "economic opportunity and freedom."

"For example it is nearly impossible to walk into a restaurant in Georgia without seeing a 'help wanted' sign for any number of reasons," Denson told Peach Tree Times. "The restaurant industry was already hard hit during the pandemic and is now dealing with the rising cost of food after raising wages to hire additional workers."

The result is restaurants are forced to raise menu prices to compensate, shorten their operation hours or close completely. A stretched-too-thin dining industry begets frustrated consumers, who walk into establishments and see empty tables but may not understand that there is no one available to serve them. 

Do Georgia's unemployment numbers show that former foodservice employees have abandoned the industry altogether? Restaurants are short-staffed, but the state’s unemployment rate has declined for 14 straight months, and currently sits at 3.7%, well below the national average. This is also the first time that unemployment has dropped to pre-pandemic levels.

Denson said that low-income workers, "whose wages often do not rise with the cost of inflation," are usually the demographic feeling inflation's impacts on real wages the strongest. Inflation has risen compared to pre-COVID-19 levels, with the consumer price index rising at a 10% annual rate. In all sectors, aside from leisure and hospitality, real compensation has fallen below trend level.

Because wages in Georgia have failed to keep pace with the national average—rising by 10.9% compared to 13% nationally—it could be deduced that food service and other low-income workers in Georgia simply couldn't afford to stay in their fields or with their employers. Georgia ranked 42nd of 50 states by wage percentage increase. 

Denson said that, while the Peach State's finances are still in good shape, the state should brace for the national effects of inflation. The prices of essential items, such as groceries, will continue to rise. 

"The first step at reducing inflation and falling real wages is to shelve the trillions in additional spending proposed in the infrastructure bill and reconciliation process," he said. 

Denson added that economic indicators "reveal that we are heading dangerously toward a period of prolonged inflation," and noted, "the solution is not pumping more money into the economy."  

Some analysts agree that federal spending is an invisible hand guiding inflation ever-upward. Denson explained that both the Biden and Trump administrations approved massive federal spending packages in an effort to navigate the unprecedented COVID-19 pandemic. 

The Federal Reserve nearly doubled its bond purchases since the beginning of the pandemic. It added almost $4 trillion into the economy, almost as much as the reserve purchased between 2008 and 2014 during the worst of the Great Recession. Biden requested a 16% increase in domestic spending in the 2022 budget, according to an op-ed in The Hill, and oversaw a multitrillion-dollar spending bill making its way through Congress.

Opinion writer Kristin Tate said there are two significant drivers of the current inflation, which are “Money printing by the Federal Reserve and “massive government spending.” Tate calls the growing inflation “Biden’s hidden tax on working Americans.”

That "hidden tax" is everywhere as the Consumer Price Index rose 5.4% across all major categories. The Bureau of Labor Statistics reported notable upticks over the past 12 months on food (3.4%), energy (23.8%), and used vehicles (41.7%).

Mark Vitner, a senior economist for Well’s Fargo’s Corporate and Investment Bank, said current inflation trends won’t come close to historical periods of inflation.

“Most of the runup in inflation that we are seeing is due to some temporary supply shortages and bottlenecks in the supply process because one or two key parts are missing, such as semi-conductor chips,” he said.