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U.S. Economy: Are Wage Hikes to Blame for Rising Inflation?

Inflation in the United States is the highest it’s been in 40 years and shows no sign of slowing down. Though wage hikes may seem like an obvious source of rising prices, is it truly to blame?

Economists seem to think wage hikes aren’t actually responsible for consistent inflation. CBS News recently explored the subject, saying big corporations like to point to higher wages, but the culprit likely lies elsewhere. Researchers believe though that may play a part, others such as good shortages and companies padding profit margins are more so.

Exploring it further, the outlet states if higher worker pay truly was responsible, labor-intensive service sectors would see huge jumps in consumer prices. However, the opposite is occurring, with goods prices increasing by far more. Julie Pollak, a ZipRecruiter economist, spoke to CBS MoneyWatch about her thoughts. “Goods prices are the main driver of inflation,” she said. “Wages so far have not been the main driver of inflation at all. Inflation was higher at first in less labor-intensive industries.”

So, why are prices rising so much then? Daniel MacDonald, the economics chair at California State University at San Bernardino, provided an explanation. He discussed restaurants and personal services raising their prices compared to a year ago. “Both of those numbers are still below the average inflation rate of 7.5%, and there are other categories that are seeing much higher price increases — gasoline prices, housing, furniture. The reason those prices are going up is not because wages are going up for producing oil in the U.S. It’s about oil markets, housing markets.”

Another key factor is higher corporate profits. Economists state higher prices mean someone is collecting more money.

In short, wage hikes are a small part of it, but goods shortages and those prices raising play a bigger role.

Farmers are Struggling with Inflation and Food Costs

While most of us are feeling inflation’s sting at the gas pumps and grocery stores, farmers are being hit especially hard.

WVNSTV reports though food prices are rising, farmers aren’t reaping the benefits from it. Richard Snuffer from Snuffer Farm in Surveyor spoke to the news outlet about the challenges many farmers now face. “Last year we paid probably $700 to $600 for a ton of fertilizer and it is going to be $1,200 maybe $1,400 for the same fertilizer this year,” Snuffer said. “So, the question is, do you fertilize? Can you afford to fertilize? Which means you are going to get less production on the same amount of ground.”

Additionally, he stated the price they receive at the market for their cattle hasn’t changed much, meaning price gauging is likely occurring. With costs for virtually everything rising, farmers are struggling to prioritize what they can and need to do.

Economists predict these prices will continue to rise. The long-term impacts on farmers remain to be seen.