Inflation is here, but the economic outlook is positive
SALEM, Oregon – A federal economic report released last week confirms what most Oregonians have probably noticed in grocery stores and gas pumps lately: Things cost more.
Average prices in the Western region, which includes Oregon, are up 6% from what they were a year ago, according to the October report on the Price Index at US Bureau of Labor and Statistics consumption. Annual inflation was around 2% over the previous decade, according to Josh Lehner, an Oregon state economist.
The inflation rate varies by industry. Energy prices are up 27.8%, for example, while food prices are up 5.4% and health care prices are only up 1.2%. Even within sectors, there are variations – the surge in energy prices is mainly due to a 42.8% increase in gas prices, compared to only 8.1% in electricity prices. Prices for meat and eggs rose 14.6%, far more than most other food costs.
The cause of rising inflation comes down to supply and demand, according to Lehner. Supply chain bottlenecks – such as cargo ships lined up in ports awaiting unloading – have made headlines in recent months, but the demand side of the equation matters too.
“We are spending 15% more than before,” he said. “And that means our supply chains are struggling… they’re moving record volumes of goods and delivering them to our doorstep, but… we’re trying to buy even more than we can deliver. So that’s one of those root causes. So these are really the bottlenecks in the supply chain because consumer demand is so strong.
Oregon’s December 2021 economic and income forecast, co-authored by Lehner and released on Wednesday, recognized challenges posed by inflation and supply chain bottlenecks, but painted the picture otherwise quite rosy for the state economy.
Federal financial assistance from the onset of the COVID-19 pandemic declined, but significant wage growth closed that gap and kept household incomes and consumer spending at high levels, according to the report.
Companies are looking to hire very quickly as the pandemic and recession emerges, resulting in a tight labor market that has resulted in big gains in workers’ wages, according to the report. Taxable wages and salaries are therefore higher than before the pandemic, leading to an increase in state revenue, even though the employment rate has not fully recovered.
Inflation also contributes to the increase in tax revenues, according to the report, as the high level of consumer demand gives companies more flexibility to increase their prices and pass costs on to consumers, thus creating more taxable profits. students.
Oregon’s economy is on track to reach full employment within a year, the report said, which would be three times faster than the period of recovery from the 2008 recession. Inflation is expected to slow down the year. next as supply chains begin to catch up with demand, although Lehner said it remains to be seen whether it stabilizes near a comfortable 2% rate.
“If it settles in that 2 or 3% range, I think we will continue our economic life,” he said. “If it settles further into the 4% or 5% range, then we are in an interesting situation where the Federal Reserve may have to step in and raise rates faster than expected to cool the economy.”
Another positive economic sign: Oregon residents already knew they were going to receive additional payments when they file their taxes next year, but the latest forecasts predict that another surplus in income could flow to taxpayers in 2024 .
Oregon operates on a two-year budget cycle, and the Kickstarter Act is triggered if revenue over the two-year period turns out to be at least 2% higher than the state originally planned. Excess revenue is refunded to taxpayers.
The revenue forecast for the 2022-2023 biennium was made at the close of the last legislative session in May, and the state’s economic outlook has improved since then. The current revenue forecast is around 2.5% higher, which would be enough to trigger a 2024 kicker – although that is still far from guaranteed, Lehner warned.
“We expect the kicker to be paid in 2024 provided the next 18 months of the economy look like (what) we expect the next 18 months of the economy to look like,” he said. -he declares.