The toll of stubborn inflation

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Kimberly Adams (0:31)

The lasting impact of long-lasting inflation.

From Marketplace in Washington, I'm Kimberly Adams. The inflation data out this week tells a story we're all very familiar with by now. Prices are rising at a faster clip than many of us can keep up with. This morning we learned that the producer price index, one major gauge of how prices change over time from the manufacturer's perspective, rose in October by 3 tenths percent, up 6.5 percent year over year. For more on what stubbornly high inflation means for the economy, let's welcome Diane Swank, Chief Economist at the Audit, Tax and Advisory Firm, KPMG. Good morning, Diane.

Diane Swank (1:10)

Good morning.

Kimberly Adams (1:11)

Wage gains have not kept up with inflation for something like seven months now. What kind of toll does that take on the economy and on consumers?

Diane Swank (1:21)

Well, it's more than seven months in the sense of the overall expansion, almost half of the expansion. We've seen wages slip below the pace of inflation. And while that was occurring, we saw price hikes continue to rise and compound to be heights too high and out of reach for too many.

Kimberly Adams (1:41)

Meanwhile, even if you take into account some of the recent turbulence, especially around tech, the stock market is up big this year powered by AI.

How can that be true? While inflation is rampant and affordability challenges remain for so many people.

Diane Swank (1:58)

Sadly, part of the irony is we've got a sort of tale of two cities. On one side of the equation, you have very wealthy households with large stock holdings, not feeling as much of the inflation and actually supporting inflation and everything on spending from vacations, which they disproportionately support to a lot of discretionary items, holding up service sector inflation, probably going to a concert or a sporting event these days. At the same time, the inflation rate for wage earners is much higher than that for affluent households. They have to spend on necessities and those things have gone up much more rapidly. So you have this growing divide that exacerbates inequality. Inflation is among the most regressive of taxes, hitting those who can afford at least the hardest.

Kimberly Adams (2:49)

When do you expect inflation to come back down to the Fed's 2% target?

Diane Swank (2:55)

This is the hardest part of all. The Fed itself doesn't expect it until 2029, and we don't expect inflation to really stabilize at that 2% level until 2029

Even if we were to see a massive drop in oil prices, that might temporarily give us a break, but an on and enough things. We see very dispersed inflation right now.

And that's really hard because even once we reach what the Federal Reserve considers price stability, it still takes time for consumers to regain all the ground that they've lost relative to inflation.

Kimberly Adams (3:31)

You also have a recent paper out talking about that Charles Dickens tale, A Tale of Two Cities to reference the times that we're living in. What can we learn from that story about this moment?

Diane Swank (3:45)

I think it's really important is, you know, even though the story is really quite hard, and it is about very different kinds of circumstances, economic circumstances as well.

I always go to the end and there is in the end, Dickens did not leave us without hope. He left us with sort of a redemption story. And I always look to hope and, you know, economies are built of people. People determine what cities they want to build. We have choices that we can make that can make the world a better place for more of us altogether. And as Thanksgiving approaches, I like to lean into that of, you know, make room at your table, set another place and break bread instead of ties.

Kimberly Adams (4:29)

Diane Swank is chief economist at the audit tax and advisory firm KPMG. Diane, thank you so much.

Diane Swank (4:36)

Thank you.

Kimberly Adams (4:54)

The Supreme Court heard arguments Tuesday in a case on the power of government agencies. A New Jersey farm was found guilty by the Labor Department of violating a visa program for temporary foreign workers. The farm, Sun Valley Orchards, was ordered to pay more than $500,000 in fines and back wages. It appealed its case to the Labor Department's administrative law judges, which are kind of like their own in-house judges. This is common, says NYU law professor Noah Rosenblum.