As businesses struggle to fill open positions, cause for economic concern has increased tremendously. Additionally, with America’s national inflation rate rising to 5% (the highest it’s been in more than a decade), many people are wondering what the future of the economy is going to look like.
The Unemployment Factor
Despite a large spike in inflation during the month of May, government officials remain unconcerned. Why, you ask? An article written for aljazeera.com explains, “One reason why so many policy makers are refusing to panic about inflation is that the world economy is still short so many millions of jobs. The global employment shortfall from the pandemic is predicted by the International Labour Organization to be 75 million this year. Nor does it expect the gap to be closed in 2022, when it reckons the world will still be 23 million jobs short of its pre-Covid path even as economies rebound.” The government is certain that if they continue to pump money into the economy while keeping interest rates low, they’ll be able to skirt a catastrophe.
Root Causes
There are couple different causes that have led to this economic state. For starters, an unforeseen pandemic shut down a lot of oversees manufacturing. Supplies needed to produce products have bottlenecked meaning production can’t keep up with the increased number of consumers. When their goods are in high demand, companies tend to increase their prices (inflation). There are also those who believe the continued unemployment benefits are discouraging people from working.
Long-Term Impacts
It’s no secret we’ll be dealing with Covid related repercussions for years to come. One of the worst is the housing shortage. Due to the cost of building supplies increasing exponentially, builders are being forced to slow/stop production. This has caused a shortage of rentals/homes and has driven the cost of living a great deal. The lack of individuals in the workforce ties into these issues as well. While many are still receiving unemployment benefits, companies are forced to allocate more money to offer incentives to potential employees. This results in current employees being turned down for raises. Many businesses don’t have the funds to increase wages for their employees after a difficult financial year. They’re also struggling to keep up with consumer demand due to lack of employees. This means businesses who have survived the pandemic are still at risk of having to close.
The increased cost of goods/living is stoking what experts refer to as the ‘wage- price spiral’. This phenomenon occurs when an increase in wage is met with inflation of goods. Both escalate until they cancel each other out. You’re making more money but still can’t afford the higher cost of living. Lastly, we’re running the risk of goods being inflated for so long, they never return back to their pre-covid prices.
For now, experts aren’t extremely worried about inflation and what that could mean for our economy. However, keep an eye on future economic developments.