This opinion column was submitted by Mike Kazmierski, President and CEO of the Economic Development Authority of Western Nevada.

With the new year approaching, inflation is one of the main concerns of the national and local economy. You may have noticed that some inflation is already happening, and you may feel it when you refuel, go to the grocery store, or dine out. Until November, many believed inflation was “transient,” mainly due to supply chain constraints linked to the pandemic. However, some now think that this inflation is more than that. The surge in the consumer price index last month shocked the system. A 6.8% increase was the largest 12-month increase in almost 40 years. So, given that we will likely experience some degree of inflation in the years to come, what does this mean and what impact will it have on us here?

Is Inflation Really Coming? There are several reasons to believe that inflation will continue in the years to come. The first is the expected Fed rate hike; three or more increases are projected in 2022. There are also fears of what is known as a wage-price spiral, in which rising wages fuel rising prices. If you have a business or if you see all the “Help Wanted” signs, you will agree that wages are going up.

“A wage-price spiral has started,” wrote Sung Won Sohn, professor of finance and economics at Loyola Marymount University and director of SS Economics. In an age when companies have no problem raising prices, “the spiral, once it starts, is hard to stop,” he writes. Here locally, inflation in wages, housing, energy and food costs is already apparent.

What does inflation mean to consumers? The Fed rate has a direct impact on everything to do with borrowing money. Residential mortgage rates, for example, are at record highs, but are already on the rise. From a low of 2.7% a year ago, we are now above 3% and could reach 4% by the end of next year, based on the expected rate hikes from the Fed .

Four percent is still not bad, considering the historical average is 8%. However, given our local home’s average price of over $ 500,000, a one percent increase in the mortgage rate adds over $ 250 per month to the payment and almost $ 100,000 to the total interest paid on the loan. . It also makes single-family housing even less affordable and leads to higher rental rates. Consumers will also have to pay more for gas, food, credit cards and almost everything in between. Even with rising incomes, the erosion of their purchasing power will force families to reduce their consumption. With consumer spending accounting for 70% of our economic activity as a nation, even a slight decline in consumption can have serious repercussions on the economy.

What does inflation mean for businesses? Businesses are in a tough spot as inflation rises. If they want to borrow money to expand or automate their operations, the cost of that capital goes up. Many other costs are rising, including utilities, rent, and employee salaries. We are already experiencing this increase in labor costs as the national pool of available labor continues to shrink. The labor force participation rate has fallen nearly 4% over the past 10 years, nearly 6 million fewer employees, and down 1% since the start of the pandemic. Fewer available employees translate to higher wages as employers compete for talent. To pay for this, employers increase the cost of their goods and services, which contributes to inflation. Locally, our small businesses and retail organizations are bearing the brunt of this inflation. It’s hard to fill an entry-level position here for less than $ 20 an hour.

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What can we expect in the years to come? With increased government spending (which increases money supply) and the Fed’s rate hike, we’ll likely continue to see inflation into 2022 and beyond. In the past, inflation has pushed the economy into a recession as consumers forgo non-essential spending. Discretionary spending is the first to feel the effects, which is why in past recessions our tourism-based economy has been hit so hard, resulting in job losses, high unemployment and the inability to survive. pay mortgages and other essential expenses.

Fortunately, with the diversification of our economy and the influx of higher paying jobs, we are well positioned as a region to weather this storm. Indeed, with the rise in savings rates, some (especially seniors) may even benefit.

So even with the potential for inflation on the horizon, our economy is positioned to succeed. However, our biggest community challenge remains affordable housing. Inflation will make this even more difficult to manage. Given our critical need for affordable housing, we need to identify solutions and work together to make it a priority for the New Year!

Mike Kazmierski is President and CEO of the Economic Development Authority of Western Nevada.

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