Brace Yourselves for Inflationary Impact

This chart, courtesy of John Butcher, shows how the Consumer Price Index has broken out from the annual 1% to 3% increase range of the previous decade. While inflation is a national story, it has public policy implications for Virginia, especially now that public employee unions can engage in collective bargaining. Federal Reserve Bank officials hope the inflationary surge will subside. But once inflationary expectations get embedded in the economy — most visibly through the mechanism of multi-year union contracts — they can be stubbornly persistent. You can’t blame workers for wanting their pay to keep pace with inflation. But someone will draw the short stick, and that’s likely to be taxpayers. — JAB