March 14, 2024
The media have run endless pieces about people being upset because prices are not falling back to their pre-pandemic level. They treat this as some great mystery that has people endlessly annoyed. The Wall Street Journal gave us the latest entry in this genre, a piece headlined, “we still don’t believe how much things cost.”
There actually is a very simple answer that is known to everyone who has ever sat in an intro econ class, wages have risen sharply over the last four years. The average hourly wage is up by just over 21.0 percent from its pre-pandemic level. That puts it slightly ahead of the 20.0 percent increase in the Consumer Price Index over this period.
That’s not a great story, but there have been many periods over the last half century when wages have trailed prices. And given that we faced a worldwide pandemic that led to a burst of inflation everywhere, it’s actually a damn good picture. Workers in most other countries have seen their wages fall behind prices.
But getting to the issue of why prices don’t fall, given that wages are 21 percent higher than they were four years ago, it would take some pretty fanciful reasoning to construct a story where prices fall back to their pre-pandemic level. Wages account for around 60 percent of costs. If wages are up 21 percent, it’s pretty hard to see how prices can get back to where they were four years ago.
Of course, the WSJ decided to emphasize its point by finding items that have seen exceptionally large price increases. That might help to push a “the economy is awful” story, but it is not a very useful way to inform readers about the economy.
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