Today, Explained - Inflation nation

Episode Date: November 15, 2021

Consumer prices are rising at their fastest rate in 30 years. Vox’s Emily Stewart explains why this is bad news for for drivers, shoppers, and President Biden. Today’s show was produced by Miles Bryan and Will Reid, edited by Matt Collette, engineered by Paul Mounsey, fact-checked by Laura Bullard and hosted by Sean Rameswaram. Transcript at vox.com/todayexplained Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

Get groceries delivered across the GTA from Real Canadian Superstore with PC Express. Shop online for super prices and super savings. Try it today and get up to $75 in PC Optimum Points. Visit superstore.ca to get started. Emily Stewart, Vox, you and I have talked about inflation on this program before, but it's confusing and it's pretty important right now. So just in case anyone out there is too embarrassed to admit that they don't fully understand what exactly inflation is, let's just start by doing a quick definition. What exactly is inflation again? Inflation is just a general rise in prices. So basically, your dollar doesn't

go as far as it used to. The basket of stuff you would buy at the grocery store every week, it starts to cost more money. I think it's important to realize prices rise slowly over time, right? Like a cup of coffee today costs more than a cup of coffee in the 60s, right? And you don't think that's weird because most people just don't notice low inflation over long periods of time. Inflation gets brought up when prices are going up faster and you actually start to notice when you go to the grocery store and you walk out of like a Trader Joe's and you're like, wait a minute, like what just happened? I bought the same stuff I do every week. Which is exactly what's happening right now. Yes, exactly. Inflation is really increasing at a rate

that we haven't seen in quite some time. Okay, you know this already. Americans are paying more for just about everything right now as inflation hits a 30-year high. Regular gas prices up more than 50%. Utility gas, 28%. Used cars, beef, pork, eggs, all up. To put it a little bit more concretely,

the Consumer Price Index, which measures what consumers pay for goods and services, rose by 6.2% over the past 12 months as of October. And that's the fastest pace since 1990. And prices were up almost 1% over the month. That's a lot. That's something that you notice when you go out to a restaurant. I've noticed that you notice when you go out to a restaurant. I've noticed it sometimes. I'll go out to a restaurant and be like, wait, is wine this much? Like it does just start to creep into your life. The warehouse grill and drinkery near Omaha says it had no choice but to add $2 to all chicken and beef dishes on the menu and an extra $3 for steak. I've been to multiple restaurants where there's just like a sticker on the menu

that says like every price is 15% more. Really? I haven't seen that yet. They're mostly like hole-in-the-wall Chinese restaurants, but that's kind of my shit though, so it's like, it's really effective. The other reason for the price hikes? Restaurants and their suppliers are facing a major shortage of workers, which is forcing them to pay higher wages to keep and attract staff. We have heard a lot, obviously, about wages going up during the pandemic, right?

Or I guess in recent months that workers are not going back to work. They're demanding higher wages. But what's happening now is that wages overall are not going up as fast as inflation. Real wages, meaning wages adjusted for inflation, are down about a percent this year. So if workers are making wage gains or just your paycheck is going up or staying how it is, like your paycheck is not going as fast as prices are. So your money's not getting as far as it used to maybe. Who can afford to fill up 15, 20 gallons of gasoline? I know a lot of people are struggling. The last time we talked about inflation on the

show, which was back in June, I think the episode was called Why Stuff is Getting More Expensive. You told me that a lot of people thought our inflation situation was temporary, a problem created by the supply chain kinks that came out of the pandemic. Is that still the consensus? It depends who you ask. But at this point, I think it's safe to say that this is lasting a lot longer than a lot of economists and policymakers thought and certainly hoped earlier this year. You know, the White House has been really vocal that this is transitory, meaning it's temporary. Our experts believe, and the data shows, that most of the price increases we've seen were expected and are expected to be temporary. Reality is you can't flip the global economic light back on and not expect this to happen.

You know, that was June. It is now November. It's lasting a little bit longer than people thought. And it's broader as well, right? But I do think it's kind of, you know, important to maybe talk about a specific thing because it does feel like everything, right? And one big example that we've seen kind of throughout the year is used cars. They are much more expensive than they used to be. So the price of used cars are up 26% year over year. That's a lot, right?

Yeah, that's a lot. So now might be a good time to trade in or sell your car. You could turn a profit. Dealers say they... And there is a whole bunch of different reasons for this. There is a chip shortage for new cars, which kind of spills over into used cars. You know, people also don't want to take public transportation. And so it's all kind of a mess, right? And that has led to used cars being very expensive. If you're on the market for a used car, you probably know that. And so, you know, for most people, like, I didn't buy a car last year. It doesn't necessarily matter for me. But if you were on the market for a used car last year, you're, like, annoyed at this point.

I know a lot of people bought used cars during the pandemic because they discovered, you know, it'd be nice to go places. But it's not like it's a daily purchase or a weekly purchase. What about more everyday stuff like groceries? Well, that's the thing. Like, inflation really is starting to pick up everywhere in a way that's noticeable. My mom's been complaining to me that her Christmas baking is more expensive, right? So it is showing up everywhere. The prices of food are going up. Price of beef is up 20% year over year. Bacon is up 15%. Eggs are up 12%. Gas is going up a lot,

and that's super annoying to people. Some out in California spending as much as $5 a gallon to fill up. Experts say demand has just outpaced supply. According to AAA, a price of unleaded gas is about $3.40 right now. A year ago, it was $2.11. And with some of that stuff, it should be important to note that it's a little bit tricky. Gas prices are not Joe Biden's fault. Oil is a global commodity, right? So this isn't like a U.S. problem. It's a world problem. During the pandemic and early on, demand dropped, so production dropped. And so now, as people are traveling again, getting back out on the road, as there is more demand for oil, it's taking kind of the industry a while to catch up.

Sounds like it's a great time to be like a vegan who rides a bicycle. I mean, that's a great time, but maybe not a fun time. I'm sorry. And the cost of heating is also predicted to rise. And so, you know, like I said before, most people are noticing that something's going on. I know this is all a pretty unpredictable science, but do economists have any theories about when this might end? I think it's safe to say this is probably not going to stop before the holidays, which is not ideal. At the same time, I do think this year's holiday season is probably maybe health-wise safer than last year. But we don't really know when it's going to end.

Like, are these things going to shake themselves out? Will the government need to act to kind of help things shake themselves out? And there's also a concern that as people come to expect inflation, that makes it worse. People start to ask for higher wages. Businesses start to raise prices. And so it sort of becomes this self-fulfilling prophecy. And there is some concern that that will, you know, sort of cause things to spiral. I don't think we're headed towards 1970s level inflation, which is what a lot of people talk about, or at least a lot of economists say that's very unlikely. But it is a little bit murky right now.

But there is something the federal government could do here to sort of slow the inflation. Right. The Federal Reserve is tasked with managing inflation, and they can take steps that, at least historically, have slowed the rise of prices. But those steps do come at a cost. so support for today explain comes from aura aura believes that sharing pictures is a great way Thank you. photos, and videos directly from your phone to the frame. When you give an AuraFrame as a gift, you can personalize it, you can preload it with a thoughtful message, maybe your favorite photos. Our colleague Andrew tried an AuraFrame for himself. So setup was super simple. In my case, we were celebrating my grandmother's birthday, and she's very fortunate. She's got 10 grandkids. And so we wanted to surprise her with the Aura Frame. And because she's a little bit older, it was just easier for us to source all the images together and have them uploaded to the frame itself.

And because we're all connected over text message, it was just so easy to send a link to everybody. You can save on the perfect gift by visiting AuraFrames.com to get $35 off Aura's best-selling Carvermat frames with promo code EXPLAINED at checkout. That's A-U-R-A-Frames.com promo code EXPLAINED. This deal is exclusive to listeners and available just in time for the holidays. Terms and conditions do apply. BetMGM, authorized gaming partner of the NBA, has your back all season long. From tip-off to the final buzzer, you're always taken care of with a sportsbook born in Vegas. That's a feeling you can only get with BetMGM. And no matter your team, your favorite player, or your style,

there's something every NBA fan will love about BetMGM. Download the app today and discover why BetMGM is your basketball home for the season. Raise your game to the next level this year with BetMGM, a sportsbook worth a slam dunk, an authorized gaming partner of the NBA. BetMGM.com for terms and conditions. Must be 19 years of age or older to wager.

Ontario only. Please play responsibly. If you have any questions or concerns about your gambling or someone close to you, please contact Connex Ontario at 1-866-531-2600 to speak to an advisor free of charge. BetMGM operates pursuant to an operating agreement with iGaming Ontario. Emily, before the break, you mentioned that there is stuff the Federal Reserve could do to step in here and manage inflation. What can they do? So one big thing that the Fed can do is to raise interest rates, which basically means making it more expensive to borrow money. And that would slow the economy down. And historically, at least,

raising interest rates would theoretically slow down inflation. I think it's also important to note the Fed has started, quote unquote, tapering, meaning it's scaling back some of its bond buying program meant to help the economy. So the Fed is slowly already kind of cooling down a little bit its support for the economy. But, you know, there is growing pressure for them to do something on interest rates. If inflation persists, which I think it will, it will move forward the point at which the Fed is forced to raise interest rates. And sooner or later, they've got to do that. The Fed chair, Jay Powell, has resisted acting on interest rates. He's been pretty clear that the economy is still recovering from the pandemic,

and he really wants to get people back to work. I would want to assure people that we will use our tools as appropriate to get inflation under control. We don't think it's a good time to raise interest rates, though, because we want to see the labor market heal further. But it's kind of a tricky line because the Fed is a little bit too trigger happy, starts raising rates that could hinder the recovery and make things worse. And at the same time, you don't want inflation to get so bad that it really also hurts the economy. So he's in a little bit of a

tough spot. How does El Presidente feel about that tough spot that the Fed chair is in? Well, we're kind of about to learn that right now. President Joe Biden can decide whether or not to reappoint Powell to be the Fed chair. We think that might happen this week. So I guess we'll know pretty quickly how he feels about Powell's job performance. Who might President Biden replace Jerome Powell with if he decides to do that this week or the next? It looks like the other person who's kind of the top contender here is Lyle Brainard, who is on the Fed's Board of Governors. Lyle Brainard? Yeah, lady. Sounds like they might have the right head for this kind of problem.

That's quite a joke. Yeah, I mean, with her, the thing is that we don't know that she would have a super different take than Powell on inflation or the path of the Fed going forward. Proponents of Powell say he's charted the economy through through the pandemic and a course change could introduce more uncertainty. A renomination would reaffirm the Fed's independence from politics. But he's a registered Republican, which progressives say is a nonstarter. They largely back Governor Lael Brainard, citing her record on financial regulation. If Biden were to choose her, it would signal that he's, you know, not happy with what Jay Powell has been up to

and not happy with what's going on in the economy right now. It sounds like a tough trade-off, though, like having some people be able to find a job versus having everyone paying more for food, gas, and electronics. Right. I think that's sort of the hard thing to square here. You know, millions of people lost their jobs when the pandemic hits, and lots of people have gotten their jobs back, but not everybody. We kind of don't understand entirely what's going on in the labor force,

why people are not going back to work. And, you know, I think it's just one of those things where, again, is it better that people are paying a little bit more for ice cream or milk or whatever they're getting at the store, but they have a job to help them pay for that or not? And I do think it's also important to point out inflation is happening in a lot of places in the world, not just the United States. So everybody's kind of dealing with the same problem. Okay, so there's this open debate about, you know, employment versus inflation. But what we know for certain is that a lot more Americans are freaking out about inflation. Yeah. Yeah. People hate inflation. We started seeing everything going up. Grocery prices went up. Gallon of milk was $1.99. Now it's $2.79.

Well, when you buy 12 gallons a week times four weeks, you know, that's a lot of money. Neil Irwin at The Times has a good story about this, that, you know, people do have money in their pockets thanks to the stimulus checks, the American Rescue Plan. People have a lot of job opportunities. People are quitting their jobs at a high rate, which is generally a sign that they feel like they can find another job. And yet people feel really bad about the economy. And a lot of that is inflation. Michigan puts out a survey on consumer sentiment that basically shows that people feel worse about the economy right now than they did in April of 2020, like when the pandemic was hitting and we thought maybe we were headed into like another Great Depression, right? That was a scary time.

Yeah, real scary time. That's what's really wild about this. Like people feel bad now. Just 22% of adults say we're headed in the right direction. A shocking 71% say we're on the wrong track. And that includes a near majority of Democrats who are saying that. And again, people are sitting on cash from the government stimulus programs. Employers are begging people to take jobs. We see all of these stories about how there are all these job openings. People aren't going back. But inflation has a really powerful psychological effect.

People don't like it and they start to worry about it. And it is nerve wracking. It's understandably nerve wracking. If you think your paycheck is not rising with your cost of living, that's a scary prospect. And this is why, despite getting some stuff done and generally keeping a low profile, people seem to be not terribly satisfied with the job President Biden's doing right now, huh? Yeah, that's what the polling suggests. People don't feel good about the economy and they don't feel good about Joe Biden. A recent NBC News poll found that just 40 percent of people approved of Biden's handling of the economy. That's down from 52 percent in April. So it's quite a drop.

Come on. And I know Biden just had a big win on traditional infrastructure, but there's still this second half of that question about all that sort of human infrastructure care stuff that he wants to do. Are the numbers and the approval ratings and the drama on inflation getting in the way of him getting his care package done? I think it's fair to say that inflation doesn't help. There are some people in Congress who don't want to vote for Build Back Better for plenty of reasons. Joe Manchin. For more than 20 years, Joe Manchin has gotten his hair cut by the same barber, his wife, Gail.

Kirsten Sinema. Miss Sinema, Miss Sinema. No. This kind of gives them another thing to add to the list of like, maybe I'm not so sure about this bill. Maybe let's think about it. Republicans have also been really unified around the message that, one, inflation is terrible. Two, inflation is Joe Biden's fault. He's coming for your Christmas. And three, passing a big social spending bill will make inflation even worse. So they're pretty aligned on this. So how much inflation will hurt Build Back Better

and the chance of a reconciliation bill? Hard to say, but I think it's really fair to say the White House would much rather not be dealing with this. Do they have any counters to this argument that this kind of spending is only going to make inflation worse? Biden is trying to make the argument that Build Back Better will lower inflation because it will let more people get back to work. It will improve the supply chain. 17 Nobel laureates in economics wrote a letter to me about 10 days ago saying this is going to

affect bring inflation down, not up. How successful that will be, who knows? I mean, how successful any of this will be, who knows? It sounds like there are just a lot of unknowns. But the one thing we know is that inflation is happening. It's a real issue for a lot of people. People are displeased. It's not going away. It's it's going to affect Christmas, which probably won't be good for Joe Biden. And that's about where the clarity ends. Do you think there will at least be some kind of It's going to affect Christmas, which probably won't be good for Joe Biden. And that's about where the clarity ends. Do you think there will at least be some kind of consensus about how to handle this problem maybe in the near future?

I mean, to a certain extent, we know a little bit how to handle the problem. The Fed is not asleep at the wheel. If inflation does start to become really worrying, they're going to start to raise interest rates. I think full stop. They're not not paying attention. But I think the broader point here is that the economy is really confusing right now. Like we are coming out of an unprecedented shutdown and the labor market is super weird. Nobody quite knows what's going on everywhere. I think anybody who says they know exactly what's happening in

the economy right now, like, it's just not true. Nobody quite knows. But it is important to kind of also think about, we've made a lot of big gains since March 2020, right? A lot of the government stimulus really did help people. Low-wage workers have the upper hand for the first time in a long time in some industries. And it's not clear that higher interest rates are going to solve something like a trucker shortage, right? Like, if you don't want to drive a truck because driving a truck sucks, like, higher interest rates are not going to change that. I guess, like, the thing that at least I keep telling myself as I feel annoyed about inflation heading into the holidays, is like, I haven't been home for Christmas to see my mom in two years.

And this is the first time I'm going to be home, right? It sucks that things are going to be a little bit more expensive, but maybe just like buy less and enjoy the fact that maybe you can see your family a little bit more safely this year. I like that. And maybe in the new year, consider becoming a vegan who bikes. If you insist. Emily Stewart. She's grateful she can see her family a little bit more safely this year. So is Miles Bryan and so is Will Reed. They produced this episode. I'm Sean Ramos for them. It's Today Explained and we're closing out our series on the future of work this coming Friday with an episode all about retirement. Do you think about retirement? What are your retirement plans?

Does thinking about or planning for retirement give you anxiety, joy? We want to hear all about your feelings regarding retirement before Friday. Heck, we want to hear about them right now. Give us a call and leave us a brief message at 202-688-5944. Again, that is 202-688-5944 or you can email us a brief voice memo. We're today explained at vox.com. Thanks. © transcript Emily Beynon you