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We need to fundamentally accept the fact that inflation is going to remain high in the near term for the correction due to the pandemic to recede, despite all the efforts the US Federal Reserve is taking like increasing the interest rates. We need to find ways where we can thrive in the state of high inflation and not dampen the economy. We can’t put less money in the hands of those salaried people, who are facing the brunt of increased prices and demanding salary hikes. In the open market, salary is going to increase as there is a sophisticated pool of talented workers and more job opportunities available than before. There is not going to be a recession in the near future. Why would an economy that has skilled workers, where the job market is strong is going to face a recession? We are psychologically putting a break on the growth of the economy. Bank failures are because of interest rate hikes by the US Fed which makes the banks’ already-bought government bonds cheaper. It’s just the failure of risk management by the banks. Or we can say unexpected turn of events thrown at US banks. How does that reflect the state of the US economy? Anyways US and the World economy are going to face upward growth. All we need to do is find ways how we can accelerate it and how quickly we can do it.
Increase the supply of Goods and Services
When we increase the salary of the employees in the country, it will inevitably increase the demand and the prices will go up and further increase the inflation. But the prices that rise can only be brought under control by increasing the supply. When we increase the supply it not only increases the GDP and growth of the country but in turn gives rise to more jobs, increased economic activity, and a higher standard of life, which will form a cycle. If we increase the interest rate, it will only affect the GDP and growth of the economy and its business. The salary increase will make the purchasing power of the people more than the price rise and inflation, only if supply is increased which can happen only when interest rates come down and industries start to expand and higher more people.
Availability of Sophisticated Workforce
The difference between earlier inflations and the one facing now is that, in the earlier times it would have not been possible to increase the supply of goods and services and the way previous inflations could have been tamed is only by decreasing the demand, which means lower GDP and higher unemployment. But now, there is the availability of more sophisticated employable people after the correction by the COVID pandemic as can be seen by every hiring manager across the globe. This creates an opportunity for the world economy, to increase its supply of goods and services, employ more people, increase the GDP, and bring higher standards of living to all its citizens. Also, The value of goods or services produced by a worker is always going to be higher than her salary. If we employ more people, their salaries are not going to be higher than the goods and services, they produce. Employing more people is not going to increase the demand, as there is less money earned by them to go after the products they produce. By employing the maximum number of people with higher salaries, we are not increasing the inflation. Only if we employ fewer people with higher salaries, inflation will increase. In earlier inflations, only a few sophisticated people were there. Now, there are more sophisticated people in all fields. So, we need to employ as many people as possible with higher salaries, as most of them are sophisticated. This will only bring inflation down.
Higher Standards of Living
Inflation can only be brought down by increasing the production of goods and services that are in demand. This in turn can happen only if more people are employed in sectors that are most flourishing. Bringing down the employment rate is counterproductive in decreasing inflation. Reducing unemployment benefits may help employment needs be fulfilled in areas that require less or unskilled labor. Assessing the current trends that are in demand and aligning every organization’s future actions and goals in that direction is important for every organization. More importantly, increasing production with the help of employees, who are trained in that field, which is in demand is important for every organization. Educating knowledge workers in the latest trends and training laborers can bring a huge uplift to the organization and economy, even if it means increasing their salaries according to their contribution towards the organization's profits. The economy will grow more rapidly and salaries of employees in every field will reach new heights, which is inevitable. The acceleration of inflation will come down in a later stage. But there will be a huge increase in salaries between pre-pandemic and post-pandemic levels in dollar terms throughout all sectors of the economy. Also, there will be a huge increase in living standards the world has ever seen.
Increased Consumption
By restricting economic activity with the help of monetary policies, we are unable to satisfy the demand for goods and services arising after the pandemic. This increases inflation because less goods and services are chased by more wealth. Only through high production of goods and services, we will be able to satisfy this demand, also by this, an abundance of choices can be presented to the consumer. These choices should be made carefully based on the products that are in demand, not arbitrarily. This abundance of production creates an abundance of wealth, not only for large corporations but also for all the employees who work for the organization. This also creates wealth for the whole ecosystem of people who are involved in the production of such goods and services. This brings down the unemployment rate and helps in nurturing the organizations that already exist and helps new organizations that will spring up, especially in developing and emerging economies. Every citizen across the world is going to consume more, which will be a market for increased production. These citizens are going to be sophisticated because after the pandemic they will demand niche products and will spend more. More jobs, more salary, More consumption, More spending, More wealth, and a higher standard of living.
US Housing Market
The housing market in the US is going to remain hot till we build enough new sophisticated houses for the people whose wages are going to increase. High Mortgage rates are temporary, and so are high US treasury bond yields. Once they come down, people will start buying homes. House owners who were wary of selling their present homes because of higher home rates of new ones they may need once they sell their old homes, will start selling their homes. At that time demand for homes will increase, ( because mortgage rates have come down and people can buy homes ), which can only be handled by building new sophisticated homes in big cities, which will be in higher demand than the low-cost homes in small towns.
Talented Workforce
Talented people will migrate to big cities and they will demand a more sophisticated lifestyle. Small towns will also see better lifestyles than earlier times. Inflation is not going to come down. But we can keep it at a reasonable level, while at the same time making the economy grow at a faster pace so that people have enough salary in their hands to meet the expenses of a moderately high inflationary economy. Inflation can only be kept at a moderately high level by the production of more goods and services. More and more people will start to show off their wealth and experiment with their talents, which were discouraged earlier during pre-pandemic times because of societal pressures.
4% Inflation to remain
Inflation will not come down. It can only be kept at a moderately high level. Inflation can only be tackled by giving enough salary in people’s hands to meet their expenses. People will get enough salary only if the economy grows and more and more goods and services are produced. This is the exact opposite of shrinking the economy. No one has enough money and prices come down. Instead, we can expand the economy. Everyone has money. Prices go up, but it can be tackled by producing more and more goods and services. Earlier people were wary of experimenting with their talents and showing off their wealth because of societal pressures. Now they can. It's high time we do that. Or else, inevitably it will happen. Better, we accelerate it. If you want the exact number. I can give you one. 4% inflation will be moderately high inflation, which will remain there despite all disinflationary measures the US Fed will take. It can't keep the interest rates high all the time affecting the growth aspects of the economy. Once it comes down, inflation will go up. But if the economy is allowed to grow by production of more goods and services, inflation will come down to 4%.
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