Economist says inflation is having a huge effect on Montana residents

October 20, 2022

Montana Economy

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Missoula, MT (KGVO-AM News) – Inflation; it is the nation’s number one problem, both economically and politically, but how did we get to this point where our purchasing power has eroded so dramatically?

KGVO News reached out to Dr. Patrick Barkey, director of the University of Montana’s Bureau of Business and Economic Research, on Thursday for answers.

The government helped spend us in inflation

Barkey started with the Federal Reserve and rampant federal spending during the pandemic.

“You start with the failure of the Federal Reserve to recognize early that inflation was erupting,” Barkey began. “Then we had the lag in the policy response from the Federal Reserve, going from stimulating the economy, which happened during the pandemic, to being neutral to now trying to restrain the economy.”

All that stimulus money added to inflation

Barkey then blamed the Federal Reserve for not acting quickly enough to respond to the soaring rate of inflation.

“The Federal Reserve’s inability to recognize inflation in time to act is certainly part of that, of course,” he said. “What the Federal Reserve should have reacted to a little better was the extraordinary amount of stimulus put into the economy with not just one stimulus bill but actually three, and you could argue that this error still occurs today, as we see the passage of things like the Tipping Act and the so-called Inflation Reduction Act.

Barkey expressed concern about the impact of current inflation on Montana’s current economy.

“When you look at what personal income is, that’s Montana household income after tax, and you adjust that for inflation and you express that on a per capita basis, we’re running to 2022, c It’s something like a 9% decrease in that figure, which is a good measure of the average purchasing power of household income,” he said. “It’s a rate of increase that, very frankly, the economy hasn’t seen since the 1930s.”

Barkey said the labor market and reduced job availability could come into play as the recession drags on.

“The one inflation factor that worries me more than anything is what I would consider to be inflation expectations, particularly in relation to the labor market,” he said. “When you have workers who are starting to see inflation erode their purchasing power and who are demanding as they can be in a tight labor market like the one we have today, and who are demanding increases in higher salary, it is a cost factor. It is something that is very powerful and can be very sustained and difficult to master. »

It may be up to all of us to get our economy back on track

Barkey said a recession and lower consumer spending may be needed before inflation can be brought under control.

“It’s called a drop in spending, and then it reverses,” he said. “Some people call it a recession. It depends on what happens, but it’s definitely a slowing force in the economy and that’s what really matters in getting inflation under control, which is slowing spending and slowing down the economy. .

Listen to Dr. Barkey’s Montana Economic Minutes every weekday on KGVO’s Montana Morning News Show.

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