Eyes glaze over when we talk about inflation? You’re not alone. But what you don’t know can hurt you.
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For anybody born after about 1985, meaning most folks under 40, all this talk about inflation seems kind of old-timey. Indeed, as Public Radio host Kai Ryssdal (citing a story in the Onion, of all places) pleads, hey, come on, pay attention, this is really important!
1982 is a long time ago
As Fortune CEO Alan Murray points out, the last time inflation was this high was 1982. Back then, he was covering the thrilling business of the Federal Reserve under the guidance of the famously obscure Paul Volcker, who once told him (in response to insistent questioning) “We did what we did, we didn’t do what we didn’t do, and the result was what happened.”)
The first thing to realize is that this is not a temporary aberration that is going to let up any time soon, as the current Fed Chairman Jerome Powell seems to be acknowledging. What happens when anything hangs around for a while — a pandemic, a conflict, high interest rates — is that human beings adapt and it becomes incorporated into our new baseline expectations. Unfortunately, that can exacerbate the very thing we might be trying to combat.
As Ram Charan and Geoff Colvin point out in a great Fortune article, inflationary cycles tend to be self-reinforcing. Companies raise prices, things get more expensive, workers demand higher pay, and it all feeds on itself.
Demand for higher wages, without much to show for those who get them
Labor was already asserting its muscle (a tiny bit) before the advent of the current inflationary period. Even iconic companies like Apple, Amazon and Starbucks are facing a push from workers for better pay, more security and better working conditions. Though hard-fought, these increases in worker well-being will not produce better living standards if everyday prices eat up the gains. For those on truly fixed incomes, inflation is a nightmare as their purchasing power decreases and the prices of necessities increases.
Companies caught unprepared are likely to lay off staff
As I’ve written about before, the investment drunkenness that led to so many over-valued unicorns looking for breakneck growth at all…
