Back in 2013, Michael Winerip wrote an Op-Ed piece in the New York Times in which he related how he used to love inflation as a young man. “In March of 1980, I was 28 years old, and inflation hit 14.76 percent, the highest it has been in the last 65 years. I was delighted. In those days, my attitude was, “Bring on the inflation!” He continued: “The higher inflation went, the higher interest rates climbed, the more I earned on my savings, the sooner I was able to amass a down payment for a house.”
Inflation 2021 is nothing like the 1980 inflation because the banks with an average interest rate of 0.50% nowadays are hardly the place to save for a down payment on a house. With an annual inflation rate in the US of 5.4% for the 12 months ended July 2021, it causes a great deal of difficulty for people on a fixed income, like the elderly. It also puts many young people in a financial crunch. The cost of housing has driven many young people from desirable neighborhoods they grew up in to other communities that have less expensive housing. It has resulted in a major population shift of young “frum” couples from New York to such cities as Miami, Dallas, and Houston.
For a young couple just starting out, the recent surge in inflation is creating enormous hardships. The cost of some of their basic needs have gone up dramatically in just the last two years. Should they wish to buy a used car, for example, they are likely to pay at least 10.5% more than they would have in 2019. Travelling from places like Lakewood to New York has gotten more expensive due to higher tolls and constantly rising fuel costs. Home renovations were hit hard with the soaring prices of lumber and glass. Most importantly, the cost of kosher food has been steadily rising. Meats, poultry, fish, and eggs experienced an approximate 2.9% increase in the general market and by double digits in some kosher markets.
Setting up a household became more expensive, particularly for such items as dishes and flatware. Women’s apparel averaged a 1.6% increase in the general market and significantly more for modest clothing in any of the “heimishe” neighborhoods. For many couples travelling to visit in-laws or other relatives, air travel became prohibitive with soaring fares. Even the use of points on some airlines became a challenge as the ratio of converting these points into tickets made them hard to use.
The current economic climate is also far from the norm. The pandemic has changed the way people shop, with online sales soaring. The problem is that some of the goods sold on Amazon, for example, are more costly. Of late, as the economy continues to rebound, demand is increasing. That’s tough for supplies and goods that have been affected by supply-chain shortages, like computer chips for cars. Now, as more people are on the roads, flying or out and about shopping, prices are being pushed upwards.
There’s also no indication that prices will dip anytime soon, according to Federal Reserve Chairman Jerome Powell. “Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell said during testimony before the House Financial Services Committee. The Central Bank believes long-term inflation expectations remain under control, which ultimately means the economy is generally recovering as expected, Powell said.
Many young people find that inflation does not keep pace with their salaries even though average hourly wages grew 3.6% in June relative to last year, the most in more than a decade. However, inflation essentially gave the average worker about a 2% pay cut, according to the Bureau of Labor Statistics. It is this race to make enough money to offset increases in inflation that prompts many women to work. Two-income households are much more commonplace these days, but the good news is that many of the jobs are remote allowing women to tend to the home while bringing in extra income.
Eliezer R has a fairly decent job on Long Island. His wife, Esther, makes some nice money selling off-brand cosmetics. Married in 2018, Eliezer uses his income to pay bills while Esther’s salary is being set aside to buy a house. He admits that on at least two occasions in the last 5 months, he had to dip into Esther’s savings to pay some unexpected bills. Eliezer, like many in their ‘20’s, “feels tight” especially now that his wife is expecting.
Many groceries that cater to the younger set say that they see these “tight” couples in action in their stores. Some buy chicken mostly rather than veal or beef, use coupons and discount flyers, and take advantage of any promotions. The grocers say that many try to “keep up with the Cohens” but are clearly unable to do so.
At the moment, there is a great deal of uncertainty on the direction of the economy. Some believe that the worst, caused mainly by the pandemic, is over while others predict that inflation will continue to climb, prolonging the angst of many young couples. The good news is that the job market has opened considerably, and good jobs are readily available.
Young couples like Eliezer and Esther are being creative in how they live. For example, while Eliezer was used to a lifestyle of going out at least once a week, he and Esther make it their business to go out at least once a month. Americans should brace themselves for several years of higher inflation than they’ve seen in decades, according to economists who expect the robust post-pandemic economic recovery to fuel brisk price increases for a while.
The Wall Street Journal recently surveyed economists about their projections for inflation. The respondents on average now expect a widely followed measure of inflation, which excludes volatile food and energy components, to be up 3.2% in the fourth quarter of 2021 from a year before. They forecast the annual rise to recede to slightly less than 2.3% a year in 2022 and 2023. “We’re in a transitional phase right now,” said Joel Naroff, chief economist at Naroff Economics LLC. “We are transitioning to a higher period of inflation and interest rates than we’ve had over the last 20 years.” The inflation measure—the Commerce Department’s core price index of personal-consumption expenditures—jumped 3.4% in May from a year earlier, the biggest increase since the early 1990s. Concluded the Wall Streety Journal: “What Mr. Naroff and the other survey respondents describe is a generational shift from the lower inflation of the past two decades, a shift that could create new challenges for households, policy makers and investors who came to expect inflation closer to or below 2%.
At the Fed’s June policy meeting, most officials projected they would raise interest rates from near zero by 2023. Several expected to raise rates next year. In March, most officials expected to hold rates steady through 2023. Some 58% of the economists surveyed don’t see the Fed raising interest rates until the second half of 2022 or later.
Given all this information, younger people would do well to heed the warnings by saving when they can and spending prudently.