Inflation has skyrocketed at an intimidating rate according to the latest data from the U.S. Department of Labor showed a 6.8% rise from November 2020 to November 2021, the fastest rate of increase since 1982.
Inflation is likely to have an impact on life and business in Fairfield County, but for consumers this may appear less as a direct increase in costs and more in the form of a continuing energy shortage.
According to Khawaja A. Mamun, an associate professor at Sacred Heart University and director of the Fairfield-based school’s master’s in business analytics program, this might have the largest local impact, particularly as winter sets in.
“The fuel oil price increased almost 60% and in Fairfield County many houses use oil for heat,” Mamun said. “That’s going to take a big bite out of wallets.”
As for the price increases consumers are seeing directly, Mamun described it as the result of several factors that were worsened by the pandemic.
“Number one is increased demand,” he said. “People have been hitting a bottleneck for many, many things for a long time. And now they are demanding those goods. As you saw, Amazon had a very good Thanksgiving weekend, but now people want to go out, drive and go meet their friends at restaurants.”
“The second part of the equation is the disruption of supply chains,” he continued. “Not only the international ports in Los Angeles or New York, but within the U.S. Slowdowns in the movement of gasoline and oil, the truck driver shortage — it is a lot of stuff that creates a domino problem.”
These elements feed on each other, Mamun warned, increasing demand while shortening supply with predictable results.
Still, with global supply chains still snarled and shortages of key materials and components holding up production across industries, the less direct impacts of inflation are still a cause for concern among Fairfield County entrepreneurs. Mike Roer, president of the nonprofit Entrepreneurship Foundation, observed that smaller startups are facing a near-future of uncertainty.
“Beyond the obvious challenges,” Roer said, “inflation makes pricing too much of a guessing game, especially for custom-made products for which producers must price the product today and then purchase components for in the future at an unknown price.”
That uncertainty is also what Mamun pointed to as perhaps more critical to understanding the local impact of inflation: he considered consumer confidence the statistic to watch, even if those numbers send mixed messages.
In January 2020, the data intelligence company Morning Consult published a consumer confidence map displayed Connecticut as a calm, pale blue — this indicated an Index of Consumer Sentiment (ICS) of 107.3 out of 120, a bit below the national average at the time but still indicating that those surveyed daily by the company’s believed that the economy was doing well and the future was far more likely to hold good things than not.
In the latest state level reporting from November, Connecticut is a pale shade of salmon, indicating an ICS of 90.8. The state’s ICS peaked in June 2020 and, except for brief respite in the summer of 2021 when hopes for the economy and the defeat of the coronavirus were strong, Connecticut’s confidence level was declining along with that of every other state.
While lowered consumer confidence is generally considered a negative sign, Mamun believed it could be an off-ramp from the current inflationary trend. If the increasing demand for finished goods dropped, he said, it may provide manufacturers and shipping the chance to catch up with already existing demand and better position themselves to meet the next increase.
However, the historic wage gains seen over the past year may be here to stay, though Mamun believed this is a relatively minor contributor to the present wave of inflation.
“Obviously when people have more money, they tend to spend it,” he said. “But savings are also up, which is good. So, there’s an increase of people with extra money in their pocket which is driving some of this sudden demand.”
According to a forecast from Business Insider, inflation could slow down in coming months, driven in part by the forces Mamun identified. But the wage growth seen across sectors, particularly the service industry, could last well past the eventual end of the pandemic as workforce shortages continue — and a forecast published by The Conference Board predicted wages for new hires and workers in blue-collar and manual services jobs will grow faster than average.
What this means for Fairfield County can vary heavily from community to community. Wage growth’s benefits for workers in cities like Stamford, Bridgeport, and Norwalk could yield advantages for those communities and local businesses that are now serving clientele in a stronger financial position. At the same time, small businesses in smaller communities could struggle to pay increased wages and subsequently face difficult decisions between reducing their margins, increasing prices or eliminating staff positions.
