Inflation’s growling wolf is at the door

Last week, Dollar Tree, one of the few dollar stores that lived up to the promise of its name, announced a shocking development. Its costs had risen so high in recent weeks that it could no longer hold the line at a single buck. Instead, it regretted to announce, many items would now cost either $1.25 or $1.50.

Wall Street was delighted. Dollar Tree shares shot up. But the news was an especially vivid reminder of the clear and present danger of inflation, coming for the very customer base that could afford it the least.

The signs of higher costs passed on to consumers are everywhere: menu items at restaurants, grocery totals at the checkout, pain at the fuel pump, shipping prices for containers, lumber costs, real estate prices, rising labor expenses for small businesses, on and on. There have been disagreements about whether this is a temporary phenomenon of COVID-19 recovery and associated federal spending (which tends to be the liberal position and is the official prediction of the Federal Reserve), or a serious threat, especially given the stubborn supply-chain problems that don’t seem to be improving. That’s a theory gaining traction among many business executives (and even some of the voices at the Fed).

But all this overlooks a crucial and much-underestimated factor. Many Americans, especially those under 40 and including many reporters and a hefty chunk of the Twitterati, have no personal experience of what inflation can do to an economy, or to a citizen saving for retirement. They fear not the growling wolf. Thus those who see its dangers have some educating to do.

Take, for example, the decades-long progressive fight for a $15 minimum wage.

Progressive organizers campaigning for minimum wage increases across the country barely breathed the word “inflation” and rarely indexlinked their demands. Whole numbers were more politically effective and far more easily understood. This has contributed to the inflation-ignorance problem.

On the other side of the political spectrum, take the 3% compounding cost-of-living adjustment, or COLA. Those increases have been attacked for years, but now we’re seeing prices rising apace.

The notion that the COLA alone is massively out of whack with inflation is looking shakier, given that the consumer price index in June was up 5.4% from a year earlier.

Businesses are girding their loins to have to pay more for workers of all stripes. And they’ll be building that into their prices. They’ll have no choice.

The problem with inflation is that it slashes the actual value of people’s savings accounts, making a retirement that once seemed secure far more tentative.

Younger people have no idea what it was like in the high-inflation years of the 1970s, of course. They don’t have a sense of costly mortgages hammering their chances of getting a loan or of watching their hard-won savings get eaten away by ballooning prices. They may well get a crash course in that understanding in coming weeks and months, but part of the current progressive orthodoxy is still that the danger of inflation is overstated. Too many people have bought that hook, line and sinker.

Yet that Dollar Tree price increase suggests otherwise. Imagine how hard that must have been for the company’s executives, given that their entire identity was wrapped up in that very barrier.

Those with some worn tread on their tires who understand the dangers of inflation have some teaching to do. The wolf is at the door.