2024 Inflation Outlook: How Much Inflation Is Baked in the Cake?

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via Mike Shedlock

As the inflation, deflation, disinflation debate rages, with Fed rate cuts in the balance, let’s discuss some of the forces in play.

The above image is from a Tweet that inspired this post.

Leo Terrell comments ‘McFlation’: $7 Egg McMuffin At McDonald’s Sparks Uproar

Where Workers will Get a Raise on January 1

Minimum Wage hikes will take effect in 2024 for 25 U.S. states. Here’s who is getting a Minimum Wage Increase.

The increases will boost the baseline pay to at least $16 an hour in three states: California, New York and Washington. In 22 states, the new minimum wages will take effect on January 1. However, Nevada and Oregon’s new rates will go into effect on July 1, while Florida’s will increase on September 30.

About 1 in 4 U.S. workers earned less than $15 an hour in 2021, according to the Center for American Progress, a liberal think tank. Workers in six states — California, Connecticut, Maryland, New Jersey, New York and Washington — will be guaranteed baseline pay that’s more than twice that of the federal minimum wage.

Some cities next year will also boost their minimum wage above the statewide level. Denver, for instance, will increase the city’s minimum wage to $18.29 an hour on January 1, topping Colorado’s rate of $14.42 an hour.

San Diego Community College District Ups minimum wage to $30.58, Nearly double California’s

How widespread are actions like this: San Diego Community College District Ups minimum wage to $30.58, Nearly double California’s

The SDCCD serves a large portion of San Diego County’s higher-eduction pie: Nearly 80,000 students attend its four campuses at San Diego City College, San Diego Mesa College, San Diego Miramar College and the San Diego College of Continuing Education.

Maintenance worker Edith Rangel, who is married and is raising a 5-year-old and a 9-year-old, is one of 250 workers whose income was boosted. Her raise bumps her pay from $22.13 an hour to $30.58, an increase of $338 per week, or nearly $18,000 a year. In aggregate, the school will now be on the hook for nearly $16 million paying just that group of employees.

How did the district arrive at the $30.58 figure? It wasn’t by accident — in fact, it was based on the Massachusetts Institute of Technology’s Living Wage Calculator, which has found that “two working adults raising two children in the San Diego metropolitan area need to make $30.58 per hour to support themselves and their family. A single adult with no children must earn $22.31 to support themselves,” according to the SDCCD.

Illinois Employers Will Pay the Highest Minimum Wage in the Midwest in 2024

The Illinois Policy Institute reports Illinois Employers Will Pay the Highest Minimum Wage in the Midwest in 2024

A 2018 University of Wisconsin, Madison study looked at the effects of Minnesota’s 2014 progressive minimum wage hike. The study found that youth employment dropped by 9% and restaurant industry employment overall fell 4% in the years immediately following minimum wage increases.

Moreover, empirical evidence suggests minimum wages do not elevate low-income families, nor reduce most forms of public assistance, but rather benefit individuals who are already employed.

The Land of Lincoln has increasingly struggled to attract employers due to the state’s high labor costs, nation-leading tax burden and large number of regulations on businesses.

A new report from the Tax Foundation ranked Illinois’ business climate as the 37th worst in the nation. Neighboring states ranked much higher in the 2024 report: Indiana ranked 10th, Michigan 11th and Missouri 12th.

Many will counter that few people make the minimum wage. That is undoubtedly true. However, increases in minimum wages place upward pressure on wages across the board.

What About Productivity?

See also  PPI Inflation was Above Expectations
Labor Productivity from the BLS

Wage hikes are not highly inflationary if productivity goes up. Lately, productivity is on the rise.

The BLS notes Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all workers, including employees, proprietors, and unpaid family workers. During the current business cycle, starting in the fourth quarter of 2019, labor productivity has grown at an annual rate of 1.6 percent, as output grew at a 2.2-percent per year rate, outpacing hours worked, which grew at a 0.7-percent annual rate.

The recent jump in productivity is largely due to fewer hours being worked. But is productivity on the rise at McDonalds, fast food places, restaurants in general, or by government employees?

Industrial Production Up Slightly, Mostly on a Huge Auto Surge as UAW Strike Ends

On December 15, I noted Industrial Production Up Slightly, Mostly on a Huge Auto Surge as UAW Strike Ends

The Fed reports industrial production rose 0.2 percent in November, led by a 7.1 percent jump in motor vehicles and parts.

That accounts for some of the productivity gains in the fourth quarter.

Largest Healthcare Strike in History Underway

On October 4, I noted Largest Healthcare Strike in History Underway, Hello Biden, You Picketing This Too?

More than 75,000 nurses, pharmacists and other employees of the Kaiser Permanente health system walked off the job Wednesday in the largest U.S. healthcare strike in recent history.

In the contract talks, Kaiser said, it has proposed wage increases of 12.5% to 16% in total over four years, depending on the location.

Unions said the employer’s offer doesn’t go far enough to offset inflation. They are seeking a total wage increase of 24.5%.

The union ratified a new contract on November 9. Reuters reported “The new contract includes across-the-board wage increases totaling 21% over four years, an increased payout for employees under a performance-sharing plan and commitments to address a staffing crisis, including increased training, education and mass hiring events.”

See also  Washington Triggers Permanently Higher Inflation

Does anyone think productivity will rise?

Minimum Wages Hikes at California Fast Food Restaurants

On September 28, I noted Minimum Wage for Fast Food Workers Jumps 30% to $20 Per Hour in California

 

More inflation is coming your way. California again leads the way.The bill will force many small restaurants out of business or they will pony up too. If McDonalds pays $20, why take $15.50 elsewhere? The $4.50 hike from $15.50 to $20 is a massive 30 percent jump.More inflation is coming your way. California again leads the way.

Massive UAW and UPS Wage Hikes

GM, Ford, and UPS workers all received record contract increases in the fourth quarter.

UPS responded by cutting 12,000 back end jobs. These jobs probably were unneeded in the first place.

I commented on that result on January 30, 2024 in Companies Turn to AI Because Real Intelligence is Hard to Find

Since those were back office workers, productivity is sure to go up. But what will UPS do for an encore?

Across the board, I see huge inflationary pressure from wages. EV batteries are also a huge concern.

Critical Materials Risk Assessment by the US Department of Energy

Please consider Critical Materials Risk Assessment by the US Department of Energy

Rare earth elements go into weapons guidance systems, batteries, wind turbines, cell phones, flat-screen TVs, magnets, mercury-vapor lights, and camera lenses.

The US is heavily dependent on China for nearly everything in that red critical square. I list the percentages by element.

Trump Calls for Eye-to-Eye Tariffs

On December 26, I noted Trump Calls for Eye-to-Eye Tariffs, Huge Trade War No Matter Who Wins

Trump and Biden are in ever-escalating tariffs proposals.

So, how might China retaliate?

Ford Cuts Production of Electric Trucks

On January 20, I noted Ford Loses $36,000 on Each EV, Cuts Production of Electric Trucks

Q: What did Ford do as EV losses mounted?
A: It increased production of Trucks that people actually want.

Hello, that’s another boost in productivity.

Productivity Boost Looking Ahead

Much of the boost in productivity won’t be duplicated. And in most cases, there were huge wage increases with no increase in productivity.

But the wage hikes are real and lasting.

Is Inflation Down? That’s What President Biden Says

Let’s tune into a White House Statement on inflation to discuss what’s real and what is imaginary.

For discussion, please see Is Inflation Down? That’s What President Biden Says

Transitory Inflation?

Economists now widely believe in the softest of soft landings.

But here’s the key question: Is inflation transitory or is the recent decline of inflation transitory?

I suggest it’s the decline in inflation that is transitory until the Fed delivers a recession.

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