Beyond Facts and Figures: An Economist Talks About Inflation and Learning from the Field

If you picked up a newspaper, browsed news online, or tuned into the evening news in the past year, you probably noticed how inflation has dominated the headlines. It’s top of mind for nearly all Americans, and for understandable reasons, as people see their purchasing power decrease and, at times, struggle to pay for essentials.

The increased attention on inflation comes with an extensive array of facts and figures. Yet, despite this abundance of information, hard data convey only so much.

You might be surprised to see me write that. After all, I’m an economist. I examine numbers and data and explore what they tell us. But those aren’t my only sources of information. The other — an equally important aspect of my work — is getting out into the community and hearing what people are experiencing day to day. I bring data and experiences together to paint a fuller picture of what’s going on in our region.

That outreach is critical to the work of the Philadelphia Fed. It gives us insights into what’s going on in the Third District, which we apply to our understanding of the economy and monetary policy recommendations. It helps us balance what we as economists and monetary policy experts see in the hard data with more immediate feedback from the public. That insight is particularly important with issues like inflation, which we know affects everyone, but is especially felt by lower-income households.

It’s not just the “real person” viewpoint that is important: The information we gather from our local and regional outreach provides a snapshot of what our communities are experiencing in the moment, whereas data can be lagging since they’re not in real time. And because data represent an average rather than specific instances or experiences, they can mask the nuance of what individual communities and regions are experiencing.

We saw that come into play in late 2021. At that time, many policymakers and economists still projected that inflation was transitory and would be addressed quickly — and that was supported by the hard data. Conversely, though, our conversations with local business owners, chambers of commerce, and others told us something different: price pressures that weren’t exclusively a result of supply chain concerns but also from unexpected operational costs, such as rising wages, fuel costs, and more. That disconnect between the hard data and what was happening in real time, in the context of the many challenges of the pandemic, should have been a warning sign that we had to test our assumptions and adjust our monetary policy approaches.

Local Insights on National Issues

Equally as important to our work is the decentralized nature of our outreach. Although the Federal Reserve System serves the entire U.S., the independence of each Reserve Bank means regional and local trends and experiences aren’t overshadowed by national data.

We’re seeing that play out now in the Third District with the labor market. Recent headlines have highlighted significant layoffs in the tech sector, leading to questions about the labor market overall and what these layoffs signal. But the situation in the Third District is substantially different because the tech sector does not drive our regional economy in the same way it might in other regions of the country.

We also face other challenges, such as an aging workforce. Pennsylvania has a considerable aging population, which impacts the available applicant pool. Couple that with how critical manufacturing is to the economy in the Third District, and it creates the perfect storm of not being able to hire enough workers.

As more workers approach retirement age, manufacturers report that it’s impossible to replace the decades of experience — sometimes topping 40 years — of recent or upcoming retirees with candidates who just graduated from college or finished trade school. It’s an obstacle that is more unique to the Third District than regions where manufacturing might not be as important to the economy — and this insight only comes to light through these connections and conversations we have in our communities.

Finding workers isn’t only an issue in Pennsylvania or just in the manufacturing industry. Our other large sector — service and hospitality — also has experienced labor shortages. Restaurants, hotels, and small businesses, particularly in our Jersey Shore communities, have reported cutting their seasons short, reducing hours and offerings, and making do with less because they simply don’t have enough workers.

Hospitals and higher education institutions — often referred to as eds and meds — are another significant driver of our region's economy. Hospitals in particular are not immune to staffing issues. In both conversations across the District and feedback from our Board and various councils, we hear how challenging it is for these sectors to recruit, with nurses being one key example of the type of workers that workplaces in our region are struggling to find and retain.

Beyond Businesses: Pulling in Individual Perspectives

Our outreach tells us more than what business leaders think or how individual sectors are impacted by rising inflation. We also learn how individuals and families are faring — and what we’re hearing is that they are stretched. 

Recent conversations with lenders and other professional services shed light on the increase in consumer credit card debt and home equity loans, indicating that many households are borrowing to supplement their income because their paychecks aren’t enough to cover their needs. And with household savings lower now than prepandemic, we’re seeing the savings many households put away during the pandemic start to dwindle, if not disappear.

Everyone is feeling the impact of high inflation and weighing the difficult decisions that come along with it. Yet it's no surprise that the people hit hardest by inflation are those least able to afford the higher prices of essentials like food, housing, and transportation.

For some, adapting is as simple as switching out a preferred, name-brand product for something cheaper, such as a store-brand cereal. But the decision-making isn’t as straight forward for everyone. Even before inflation skyrocketed, the most vulnerable weren’t purchasing name-brand cereal. They’ve already cut those corners. And spending habits have changed outside the grocery store as well. I’ve heard from several gas station owners that fewer people are filling their tanks when they stop in to refuel. Instead, they are putting in $15 or $20 and reserving the extra cash for other costs.

What’s more, our conversations with health and human services organizations show an ongoing high demand for services and support as families seek help navigating these difficult times. I’ve witnessed these increased requests for help firsthand, particularly in a local, community-focused social media group I participate in, where requests for donations of food, gently used children’s clothing, and other essentials are becoming more frequent.

Making ends meet in the short term is only part of the story: These tough decisions have long-term effects on financial and economic health. When someone is living paycheck to paycheck, that holds them back economically. For individuals with lower incomes, money going to basic needs is money that isn’t saved for the future or going toward a new home, continuing education, or a family trip to the Jersey Shore. That’s called opportunity cost, and it has a real economic impact.

We continue to prioritize reversing inflation and achieving price stability as part of our dual mandate, along with pursuing maximum employment. Our outreach is vital to that: The firsthand, real-time accounts of what people and businesses in our community are experiencing are critically important to our inflation fight and making sure local perspectives are brought to national issues.