Megan Williams, Associate Economist at the Kansas City Fed, tells us more …
WILLIAMS … “A lot of that has to do with labor force participation rate is definitely lower than it was pre-pandemic. Still having trouble attracting some of those people back into the labor force that exited during that time.”
So why IS inflation so high right now? …
WILLIAMS … “A few things. One is the issue we just talked about. When businesses have trouble attracting workers, they will have to start to increase wages to try to attract those workers. And once that happens, businesses are paying more for workers. Then they will have to, then in turn, look at their own balance sheets and increase their prices to the consumers.”
And, if farmers can’t find workers, Williams says some will turn to automation …
WILLIAMS … “Some are automating, you know, turning to automation instead of using workers to do jobs, which can be good for some things, but can also be problematic in the future when people are looking for jobs, those aren’t there anymore. But I would say, you know, if companies are having trouble with that, then they will turn to automated.”
Interest rate hikes are not something anyone wants to see, but Williams says, we have to have that if we want to see inflation go down, and we should expect a few more increases this year.
WILLIAMS … “By increasing the interest rates, that will in turn kind of turn people away from borrowing, from spending, particularly those purchases that are longer term purchases.
And that’s going to slow down the economy, hopefully just slow enough to where we can kind of see that inflation coming down without having too many detrimental impacts.”