April 20, 2011
Inflation is hitting U.S. consumers hard. The last era of severe inflation was in the 1970s, when prices and wages spiraled upward. This time, while the official inflation rate is still relatively moderate, wages are stagnating and prices for essentials like food and fuel are rising.
Ashwarya and Alok Sharma and their two children emigrated to the United States from India 10 years ago. They are now U.S. citizens. Like most Americans, they are feeling the financial pinch from inflation. Consumer prices overall are rising at a 2.7 percent annual rate, while average hourly wages increased by just fraction of one percent.
Alok Sharma says something has to give. "It is hitting both ways because you don't get well paying jobs, and you don't get a raise. And then inflation hits you on the other side," she said.
Economists say energy and food costs are driving inflation, and Americans are looking for answers. The Sharmas live in a suburban neighborhood north of Washington D.C. They work in the computer field and commute 65 kilometers round trip each day to work. Gasoline prices have risen about 26 cents per liter during the past year.
Alok Sharma says that is taking a big bite out of his family's budget. "Our gas bill has gone up 40, 50 percent," he said.
The Sharmas are vegetarians. They eat a lot of fresh vegetables. And they drink a lot of milk, which Ashwarya Sharma says has doubled in price. "Like almost a year back it was $2 a gallon [i.e., about 53 cents per liter]. Now it is $4 a gallon [about $1.06 per liter]," she said.
They estimate that their food costs have risen 25 to 30 percent during the past six months. Alok Sharma says that if prices continue to increase, his family will have to cut back and consider lifestyle changes. "Still we are in the habit of getting whatever we want, what ever children demand. Gradually I think we have to make our choices only for cheaper items," said Sharma.
Some say the expanding middle classes in countries like China, Brazil, and India are consuming more resources and driving up prices worldwide. Other experts say drought in places like Russia, turmoil in the Middle East and a global lack of refinery capacity have driven up food and oil prices.
Economist Danny Leipziger of The George Washington University School of Business says these factors play a role. "I don't think the middle class in China is going to create rampant global inflation. But you do have certain markets that are more susceptible. And you are seeing prices increase in those markets. Will that lead to a global resurgence of inflation?? Probably not," he said.
Leipziger says oil prices will likely rise in the long-term because it is a finite resource.
For now, he says, families in the United States will have to deal with price increases. Because the U.S. economy is climbing out of a deep recession, Leipziger says raising interest rates, a common tool for controlling inflation, could make things worse. "The middle class is taking a big hit. And we wouldn't want to see policy makers overreact to inflation at the cost of stalling the recovery in the U.S. That would be bad policy," he said.
Alok Sharma says his family might need to dip into savings to make ends meet, take fewer trips to visit family in India, and look into organizing a car pool to commute to work. Hopefully, he says, in a few years, his family's wages will increase and offer some relief.