BATON ROUGE, La. (BRPROUD) — The latest inflation report shows the cost of living grew by 9.1% in June compared to a year ago. Food and energy costs continue to be the largest increase. The energy index grew by 7.5%, gasoline grew by 11.2%, and food costs went up by 1%.
LSU Economics Professor Dek Terrell said there are several things that can be done to ease the pressure, the main one is the Federal Reserve raising interest rates.
“The Fed’s gradually trying to let those rates creep up to combat inflation. Now they’ve signaled they’re going to do it in a very aggressive manner, but when they do it in a very aggressive manner it is going to decrease economic activity because people are going to see those higher prices,” Terrell said.
He said raising interest rates will help with the issue but it is a delicate process.
“That’s the thing that will ultimately reduce that money supply or at least decrease the growth rate in the money supply and level off inflation,” Terrell said. “The challenge from the Fed standpoint is the more aggressive they are the more likely we are to plunge into a recession.”
When it comes to gas prices, he said part of that is the Russian conflict, but also the limits put on new leases for gas production. Many members of the Louisiana delegation are pushing for the Biden administration to ease up those restrictions since refineries are already working at peak capacity. Even if new leases are allowed it will be a long-term fix to the issue.
As prices increase it leads to people needing higher wages, which Terrell stated adds to the cost of living.
“Then my employer says, well, I can’t increase everybody’s wages without increasing the price of my product,” Terrell said. “So that’s how you get this broad-based increase in prices. And until people start to believe that there’s not going to be a continued increase in prices, it’s really difficult to get it under control.”
He said the major government spending bills during the height of the pandemic were needed, but added a lot of money into the economy which Terrell calls too many dollars chasing too few goods.
“In order to avoid negative impacts on the economy, there weren’t a lot of buyers for the Treasuries that were issued to the bonds that were issued to try to fund that borrowing,” Terrell said,
There has been a push by the Fed to increase those interest rates and by politicians to beef up gas production. But Terrell believes there is no quick or easy solution.