Economist: Inflation to go higher

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COEUR d’ALENE — Sam Wolkenhauer did not sugarcoat the economic forecast he presented on Wednesday to the North Idaho Building Contractors Association.

“I would like to begin by addressing rumors that you may have heard about inflation. They are true,” he said. “Inflation is back, baby.”

The regional labor economist with the Idaho Department of Labor gave a 30-minute talk to about 100 NIBCA members at The Best Western Plus Coeur d’Alene Inn.

He wasted little time pointing out February’s inflation was 7.9%, the highest since the early '70s. He said it’s going higher, and it’s likely going to stick around for a few years.

“This is probably not going to be a transitory thing that will just be done by the end of the year, especially because it takes a long time to physically sort out all the problems,” he said.

Wolkenhauer covered inflation, the labor shortage and changing demographics in his entertaining and humorous talk that had the crowd smiling, despite the rather gloomy outlook.

He said the last time the country had high, lingering inflation, “the monetary response to crush that inflation gave us double-digit mortgage. I'm not saying that interest rates are going to be in the double digits this year. We just need to know that historically, this is how the Fed deals with high inflation.”

“And we need to know that as of right now, bond markets are expecting seven rate hikes in 2022,” Wolkenhauer said.

While the economic problems began well before Russia’s invasion of Ukraine last month, he said the war is having an impact in the U.S.

He said Russia is a major exporter of important raw materials such as aluminum, fossil fuels, nickel, manganese and ethanol, as well as wheat and fertilizer.

He said the cost of a shipping container is today 600% higher than it was pre-COVID and prices of many products are escalating rapidly.

The U.S. has led efforts to place economic sanctions on Russia.

“So inflation is expected to go higher as a result of Russia's disconnection from global markets,” Wolkenhauer said.

“We also need to be aware that according to the standard playbook, the way we crush this is with higher interest rates,” he said. “So we need to be aware that that's coming down the pike. This isn't like a super optimistic speech,” he added, as people laughed.

He said job creation in Idaho, which was the fastest in the country to regain jobs lost during the COVID-19 pandemic, has slowed because there are not enough workers.

There are three times as many open positions as there are unemployed people.

“Most people with strong skillsets have already gone back to work,” he said.

The current lack of labor is Idaho’s No. 1 barrier to economic growth, Wolkenhauer said.

Where did the workers go?

The Baby Boomers, born between 1946 and 1964, are retiring in record numbers and rapidly leaving the workforce. The country has nearly 50 million retirees, who took their skills with them.

They are unlikely to return to working because they retired with more wealth and better health than previous generations, Wolkenhauer said.

Even those without wealth aren't working.

In December, five million people quit their jobs in America, he said.

The unemployed are now choosier about what job they’re willing to take and seeking higher wages. If they can't get them, they're willing to stay home and play video games.

“Workers know they have the leverage now,” he said.

The worker shortage affects the supply chain, from products being produced to shipped to trucked and to being placed on store shelves.

And because population growth is flat, there are fewer kids growing up and entering the labor force.

He said Baby Boomers grew up in households with an average of four kids. Those kids went on to become adults and have two kids, on average, of their own. Millennials, those born between 1981 and 1996, are getting married later and having fewer children.

Wolkenhauer poked fun at Gen X, those born between 1965 and 1980, and said he rarely includes them in his presentations because they’re not retiring, not going to school and not having kids.


“They’re not doing anything interesting,” he said, as everyone laughed.

Foreign immigration is accounting for some population growth and filling jobs in America.

“This is our demographic reality,” Wolkenhauer said.

He said he read a recent report that a major port on the Mississippi River, through which many products make their way to the Midwest, is expected to be backlogged through mid-2023.

"And it's because we don't have enough of everything we need to clear trucks, trains, cranes and people to operate this machinery,” he said.

The labor shortage isn't going away, he said, and "inflation will remain high."

“We’re running up against this demographic reality, it's very hard for us to fudge and not deal with this the way we normally deal with our problems, which is to print money, because we conduct a what I call Fast and Furious economics.”

Wolkenhauer said his overall message was, “we're living in a new type of economy, where we're not constrained by financial considerations, we're constrained by our physical capacities.”

Americans are used to a world where if they can afford something, they can acquire it, like, right now.

That's no longer true.

“There are now a lot of things that on paper we could afford, but we cannot physically acquire them," he said. "That's the reason we have inflation and that's the reason our rate of growth is kind of grinding to a halt in this country. We're at the limit of our productive capacities."