Economists at J.P. Morgan have calculated that inflation has outpaced wages for the past 22 consecutive months, and some fear a recession may hit by the end of the year.
Adedayo Ogunniran, a doctoral candidate in economics at the University of Mississippi and graduate instructor, shared his opinion and knowledge on how inflation will affect citizens of the United States and, specifically, Mississippi.
“What we call inflation is basically a sustained increase in the price of goods and services in an economy over a time period,” Ogunniran said.
Inflation disproportionately affects those earning the least. People living paycheck-to-paycheck and in low-income areas are especially vulnerable to price increases, especially when considering that the United States’ federal minimum wage is now around 40% lower than in 1970. Though the real dollar amount has increased, inflation has caused purchasing power to decrease.
This steady rise of the inflation rate hurts Mississippi residents as the price of groceries and other necessities rise in turn.
“One direct implication of high inflation, especially when income levels are unchanged, is a reduction in the purchasing power of every consumer,” Ogunniran said. “Consumers are having to spend the same amount of income to purchase more expensive goods.”
He stated that Mississippi is one of the states hit hardest by this rise in inflation.
“The erosion in purchasing power is more excruciating for consumers in low-income states
like Mississippi. The real median household income in the state of Mississippi is $46,637, which is 34% below the national average of $70,784. The U.S. Census Bureau also estimates that about 19.4% of Mississippians are living in poverty, which is the highest you will find among all the 50 states in the country,” Ogunniran said.
Mississippi has enacted no minimum wage increase laws, and follows the federal minimum wage of $7.25 per hour.
Ogunniran stressed that even though these rates have impacted the national economy immensely, the South as a region has been hit especially hard, well with the inflation rate in the South being higher than the national average.
“Prices advanced in the South by 5.3% in March 2023, although this inflation rate was a decrease compared to 6.4% in February,” Ogunniran said.
A fall in the inflation rate does not mean that workers’ buying power is truly recovering, however.
“Just to be clear, a lower inflation rate does not mean prices are falling. Rather, it means prices are still rising, albeit at a slower pace,” Ogunniran said.
Ogunniran explained that the United States is facing multiple types of inflation.
He introduced three main types:
“The first is demand-pull inflation, which is a surge in price level due to an increase in aggregate demand. The second is cost-push inflation, which is caused by rising production costs. Finally, we have supply shock inflation that is caused by supply chain shortages. The inflation we are currently experiencing is a combination of supply shock and cost push,” Ogunniran said.
Regarding the cause for this rise in inflation, Ogunniran brought up the devastating impacts the COVID-19 pandemic had on the United States economy.
“There was supply shock inflation after COVID hit in 2020, and even though the economy is gradually recovering from the pandemic, we are still experiencing some supply shortages,” Ogunniran said. “The supply shock effect has been compounded by a cost-push factor, as we’ve seen gas and diesel prices rise after the war between Ukraine and Russia tightened the global supply of crude oil.”
World events such as these have left many students feeling uneasy about earning the money necessary to keep up with the rising prices. Senior biology major Tyler Gangwer expressed his plan to take a gap year before applying to medical school.
“With how the market is going, I am worried that the price of things like groceries will be so high that I won’t be able to save for bigger purchases like a new car or a house, especially with an entry level salary,” Gangwer said.
Senior international studies and political science major Mary Nemček, who plans to move to Huntsville, Ala. after graduation, is similarly worried about the future of the economy. Planning to work as a high school teacher, an overly saturated job market is not the first of those concerns.
“Teachers are leaving (their jobs) en masse, and there are reasons why they are leaving. I’m not somebody with a very opulent lifestyle,” Nemček said. “But when I think about all of the bills and expenses that come with entering the job market and moving to another state, a teacher’s salary does not even begin to cover everything.”
Nemček is specifically worried about the expenses and liability associated with owning a car.
“I’m moving to a city that is not walkable whatsoever, and as a growing city there is so much traffic. It takes 30 minutes to get from one side of the city to the next, so the price of gas will be a problem,” Nemček said.
She mentioned that her car is an older model and would likely break down in the coming years.
“It’s only a matter of time before one big expense comes, and then you’re in trouble. As someone with debt from student loans, that’s a scary possibility,” Nemček said. “There aren’t very many jobs available to graduating students that let people live a middle-class lifestyle and cover unexpected expenses. This is not our parents’ economy anymore.”
Ogunnirian is more optimistic for the future, though, and touched on typical inflation trends.
“On a bright note, economic theory suggests that an increase in the prices of goods and services sometimes leads to an increase in the demand for workers to supply them,” Ogunniran said. “The possibility of this increasing job growth in some fields should be comforting to seniors graduating and entering into the labor market.”
He explained that the inflation rate should continue to decrease in the coming months.
“The outlook for inflation generally seems positive in the medium term. The U.S. Federal Reserve has been taking an aggressive monetary policy stance to curtail inflation in the economy, which portends a greater level of price stability,” Ogunniran said. “We should also continue to see inflationary pressures ease further as businesses continue to recover from the pandemic.”
Hal Fox contributed reporting.
