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Adding perspective to inflation news | READER COMMENTARY

Inflation often hits companies with large inventories, such as retail stores, particularly hard. When the cost of goods increases, it usually goes up at both the wholesale and retail level. That means that stores have to replace recently sold inventory with new products that come with higher price tags from wholesalers, which eats into profits. Small businesses also often suffer during inflation, as suppliers often favor larger companies in moments of high demand. Since small businesses usually buy smaller quantities of raw materials or wholesale products, they also have less leverage with suppliers.

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We are bombarded almost daily with bad news about inflation. The latest “sticker shock” comes from the report that consumer prices rose in March by 8.5% compared with a year ago — the largest annual rate of increase since December 1981 (“US inflation jumped 8.5% in past year, highest since 1981,” April 12). But let’s try to keep some perspective amid all the shouting and political finger-pointing.

First, the figure compares March 2022 with March 2021, when prices were depressed by the pandemic. If we compare March 2022 to the pre-pandemic prices of March 2019, the rate of inflation is 13.1% over three years, or 4.2% per year (compounded).


Second, for several decades, we have been conditioned to expect consumer prices to increase by less than 3% per year — or even less than 2% per year (the current Federal Reserve target). However, some of us are old enough to remember when the annual inflation rate was typically around 5% and sometimes higher. For example, the annual CPI for all urban consumers increased by 7.8% per year from 1970 to 1980, and by 4.7% per year from 1980 to 1990.

Third, one of the key reasons for low inflation since 1990 has been wage stagnation. Similarly, one of the reasons for the recent spike in inflation is higher wages, triggered in part by labor shortages. Higher wages are long overdue, although it is obviously not helpful if consumer prices rise faster than wages. Once other factors driving inflation diminish (such as pandemic stimulus spending, supply chain issues and the war in Ukraine), it should be possible to have both higher wages for workers and acceptable levels of price increases for these workers and other consumers.


Michael Lee, Towson

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