A "good" price hike

Price increases for individual items don't necessarily mean inflation, and in fact can be useful to the economyIf you're trying to make a case for inflationary pressures, you may need to borrow some dogs from the Drug Enforcement Agency to sniff out the evidence. In fact, the data on inflation still shows little movement in overall prices. The consumer price index is up about 2% over last year, and

Price increases for individual items don't necessarily mean inflation, and in fact can be useful to the economy

If you're trying to make a case for inflationary pressures, you may need to borrow some dogs from the Drug Enforcement Agency to sniff out the evidence. In fact, the data on inflation still shows little movement in overall prices. The consumer price index is up about 2% over last year, and the average prices for goods that manufacturers use have actually fallen over the past twelve months.

While we're on the subject of inflation, let's keep in mind that it is not related to a rise in prices for individual goods and services. A rise in driver pay, in and of itself, doesn't indicate inflation any more than does, say, a rise in the price of orange juice after a big freeze in the South. Inflation occurs when there are price increases throughout the economy, brought about when the supply of money grows faster than the output of goods and services.

We're making this point because at the moment much of the concern over inflation revolves around the labor market. The theory is that as the unemployment rate goes down, employers will have to offer candidates more money to work for them, increasing the general level of wages -- and thus creating inflation. However, the price of labor works like the price of anything else: An increase in wages is not in itself an indication of inflation.

If the the growth of the economy is such that there is an increasing demand for skilled labor, then all things being equal, wages will go up. Inflation is not a part of this scenario unless the Federal Reserve consciously increases the money supply so that (at first) it looks like the economy has more dollars for payrolls.

So the emphasis on wage growth as an indicator of inflation, and an indication of where the stock market is headed, is misplaced. With a money supply that is growing in proportion to the overall economy, it's very likely that some prices will rise and some will fall, relative to their 'supply and demand' at the time.

At the moment, this appears to be exactly what is happening in our economy. Prices for services, which are mainly dependent on wages and salaries, are rising faster than prices for manufactured goods, which are relatively more dependent on capital and less dependent on labor.

We are glossing over a few other factors, however. For example, productivity gains can help keep prices low, even if demand is high. But the main point is that wage increases themselves can be a false signal of inflation, and should certainly not be responsible for causing large swings in the stock market.

In the trucking industry, it's clear to fleets that the prices they see for goods and labor have their own characteristics, and don't always have a lot in common with price increases throughout the rest of the economy. The key items that affect the basic costs for trucking, such as fuel, wages, and equipment, are going to rise and fall based on their own supply-and-demand conditions.

Fuel prices, for example, are affected by all sorts of domestic and international events that are unrelated to U.S. inflation. It seems unlikely that there will be a major run-up in the next few years, but there will always be short-term fluctuations that raise or lower operating costs. Truckers may want to look more closely at hedging, which is a way to be protected from swings in fuel prices.

Equipment costs, in contrast, appear relatively stable. The government's price index for Class 8 trucks and tractors has shown a gain of less than 1% over the past year, and only 2.5% over the last two years. Productivity gains in the economy are concentrated in manufacturing, helping to control costs in the factories. Truckers are likely to see flat equipment prices for the next few years. The newer trucks also run more efficiently, which helps control operating costs.

That leaves wages and driver compensation, which is a price spike waiting to happen. The industry is raising driver pay, although slowly, and at the same time is raising rates in order to pay for it. Pay increases are necessary to keep good drivers and attract new ones. Higher driver pay does not mean inflation, nor a downturn in the stock market.

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