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- Scoop Market Mysteries 8-29 (Inflation & Wages)
Scoop Market Mysteries 8-29 (Inflation & Wages)
🔎 Market Mysteries: Should I ask for a raise?
Market Mysteries of the week
Everyone's talking about inflation. Should I be asking for a raise?
Answer: Absolutely. The stuff you’re buying is getting more expensive, and corporations have never been more profitable.Why now?First off, if you don’t ask for it, you’re probably not going to get it. So you should always make sure your pay is growing with your level of work and responsibility. But more importantly, prices are rising for many of the things you need to buy.How does inflation work?Nowadays, the global economic supply chain is so interconnected that a few small disruptions can have major impacts across many industries. Over the last year, we’ve had way more than a few small disruptions. We turned the global economy off, then back on again, and then shut different regions on and off intermittently ever since. Beyond that, there have been huge storms and natural disasters, from Asian tsunamis to Texas freezes and California wildfires. And remember when a boat blocked one of the most important shipping routes in the world for a week?For example, a single Bullfrog Spas hot tub is constructed by 500 workers, using 1,850 parts sourced from 7 countries and 14 states. It used to take a few weeks to produce and deliver one, but now customers wait six months to receive one. Texas storms disrupted chemical production for components. The pandemic decreased shipping trucks on the road. Bullfrog had to pay up to fly materials and store them in a warehouse when Chinese ports grew congested. With more people at home looking to spice things up, hot tub demand surged. All of these disruptions have decreased supply and made production costlier. This is what creates price inflation.How bad is inflation right now?We’re continuing to see more evidence of these kinds of supply disruptions pushing up prices across industries. Economists see 2% annual price inflation as a reasonable increase. As of July, consumer prices have broadly risen 5% year-over-year. Food prices are up 3%, and energy prices are up 24%. If your boss is only offering you a 1% “cost of living adjustment,” speak up.Over the past year, computer chip shortages have had some of the biggest impacts across industries. The chip shortage has affected the auto industry most conspicuously. Major automakers have stalled or completely shut down production, missing necessary computer chips. With lower supply, new car prices are up 6% over the last twelve months, and used car prices are up 42%. Adding to the strain, one of the largest computer chip makers in the world, Taiwan Semiconductor Manufacturing Co (TSM), last week warned they would be raising prices by as much as 20%. Won’t raising wages just increase inflation further?It’s definitely possible. Rising wages mean rising costs. If employers choose to cover those rising costs by raising prices, that means more inflation. But most of the main drivers of inflation right now are from supply shortages. Companies can’t get enough materials in time or don't have enough people to manufacture and produce as quickly. There is a labor shortage right now - more jobs available than those seeking. Some have claimed it’s because higher government unemployment benefits have disincentivized workers, but there’s no evidence yet of an increase in employment from the states that ended the benefits early. So far, many have pointed to health concerns and childcare issues as the main strains. So, if paying people more can get them back to work, that can increase productivity and decrease supply constraints.Corporate profit margins are currently at all-time highs, meaning their costs are the lowest they’ve ever been compared to their revenues. Beyond that, corporate profits and revenues have had the strongest year-over-year surge in over a decade. So, it could be reasonable to think now is a time where corporations have room to raise wages without raising prices.Should I be concerned about inflation?Policymakers are still not worried. The White House and the Central Bank expect the high inflation to go on a little longer than they originally thought, but they still think of it as growing pains for a restarting economy. However, keep in mind that they expect prices to keep rising near 5% for a while. So, employers may need to keep up.As we work through the pandemic, people get back to work, and global supply chains start running more smoothly again, prices should normalize. Looking at the computer chip example, TSM’s higher prices right now will help decrease demand. Then the higher income will allow them to expand production and increase supply, eventually bringing prices back down.Get that raise. Tell your employer their operating margins can handle it. Please feel free to forward this to anyone who might find this interesting.💙 The Scoop Team
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