The 13-year high inflation rate could become an “unstoppable” drag on the nation’s economy and the Biden administration appears determined to use it to “drive up wages” in a way that threatens a recovery for many employers, according to Gov. Chris Sununu.
Sununu’s commentary on macroeconomics could become one of his themes if the three-term governor decides to run for the U.S. Senate in 2022 against Democrat Maggie Hassan.
Last week, officials reported the Federal Reserve’s measure of inflation, the personal consumption expenditure index, had risen to 3.9% in May, a percentage point higher than the fed had expected.
Sununu said rising prices will make it more difficult for companies to deal with a chronic worker shortage.
“Inflation is the most regressive tax that we have — that’s how we should be thinking about it,” Sununu said.
Industry leaders in the state have warned that this trend could become more harmful and costly over time.
“There’s often a lag with inflation as companies have already locked in months ago prices at lower amounts,” Sununu said. “That’s why the corrosive impact could occur later this fall and into the winter.”
Higher prices are contributing to rising wage rates, he said.
Fed chair: It’s temporary
Some industry analysts maintain the spike won’t last. They attribute much of it to industries coping with a ramped-up demand for goods now that the worst of the COVID-19 pandemic is over.
“This drop suggests that the cause of that inflation — the mismatch of supply and demand — will not last forever,” said Brad McMillan, CIO at Commonwealth Financial Network. “As suppliers across industries get their acts together, those shortages will fade, along with the inflation. That looks to be happening for lumber now and will happen for other inputs later.”
Fed Chairman Jerome Powell told a congressional hearing last week that the price jumps are “transitory.”
“There’s a lot of demand, but on the supply side, it’s just hard. They can’t build enough houses. There wasn’t enough lumber. The lumber prices went way up... and they’ve gone way down,” Powell said
“We think that’ll be the pattern for at least some of these things, where they go very, very high, and then they come down as more supply comes online to meet the higher demand.”
Powell said another factor that should tamper inflation is the return of more Americans to the work force, New Hampshire and a few dozen other states have ended extended unemployment benefits, which many companies said discouraged people from looking for work.
The federal program of increased benefits for the jobless ends in late September, Powell said.
Few congressional Democrats have commented on this issue in recent weeks.
A spokeswoman for Hassan said she recently addressed the topic.
Sununu said he’s especially concerned about this issue when it comes to energy prices residents will face this winter.
“The whole thing is going to crash a little bit,” Sununu said.
“Supply and demand is really going to come to a loggerhead because I don’t see fuel prices coming down anytime soon.”