Rick Haglund: Rising prices aren’t slowing Michigan’s economic recovery. But omicron might.

By Rick Haglund, Michigan Advance

Michigan’s economy is in shambles, the Michigan Republican Party would like you to think.

The GOP’s key data point? Detroit-based Little Caesars has raised the price of its $5 Hot-N-Ready pizza by a whopping 55 cents, the first such price increase in 25 years.

Michigan GOP spokesman Gustavo Portela blamed the price hike on “[President] Joe Biden’s and [Gov.] Gretchen Whitmer’s inflation crisis” and cited it as an example of why Michigan needs to elect a Republican governor this year to “help our state become prosperous again.”

Portela conveniently didn’t mention that Little Caesars said it also said it would increase the amount of pepperoni on Hot-and-Ready pizzas by 33%, boosting value for money.

And Little Caesars intentionally froze the price of a Hot-N-Ready over the past quarter-century for competitive business reasons. Had the price of the pizza kept up with inflation over that period, it would cost about $8.75 today.

There’s no question Michigan residents and those nationwide are feeling inflation’s bite on everything from groceries to gasoline. The Consumer Price Index last year rose at the fastest rate in nearly 40 years.

Inflation is on a concerning rise for a number of reasons, but it’s basically a result of an astonishingly quick economic recovery from the early days of the COVID epidemic. That’s something Republicans would like you to ignore.

Inflation is on a concerning rise for a number of reasons, but it’s basically a result of an astonishingly quick economic recovery from the early days of the COVID epidemic. That’s something Republicans would like you to ignore.

Rick Haglund

Nearly one out of every four Michigan workers was unemployed in April 2020 as the economy was largely shuttered to fight COVID’s deadly spread. We knew little about the virus then, and there were no vaccines to combat it.

State unemployment has since plunged to 5.9% in November with Michigan having recovered 80% of the 1,055,000 jobs lost at the start of the pandemic. Data for the full year will be released on Jan. 20.

But the speed of the recovery, boosted by stimulus payments from the Trump and Biden administrations that fattened consumers wallets and kept many businesses afloat, also has led to widespread shortages of goods.

Supply chains for dozens of products, including computer chips, appliances and various foods, have snapped as demand for those things jumped. As a result, prices of scarce goods and services, including cars, houses and restaurant meals, are spiking.

Meanwhile, employers are boosting wages because they’re having a tough time finding enough workers, ranging from software engineers to dishwashers, as the economy accelerates.

“High inflation is part of the price we’re paying for a fast recovery,” University of Michigan economist Gabe Ehrlich told me.

But he said it’s much less worrisome than the painful “stagflation” some of us remember from the 1970s that featured high unemployment, slow economic growth and rising prices.

The million-dollar question is how long the inflation spike, which is eating into living standards as prices for goods and services rise faster than wages, will last.

Many economists and the Biden administration initially thought rising prices would be “transitory.” But Ehrlich and other economists now say inflation has proven more stubborn than predicted.

Erhlich said he thinks inflation will gradually decline to a more acceptable level over the next two years as supply chains reconnect, increasing the flow of goods and services. 

In a November forecast, he and fellow U of M economists predicted inflation will fall from about 6.8% last year to 4.6% this year, as measured by the Detroit CPI, and slip to about 2.5% in 2023.

The wild card is the raging omicron virus, which hadn’t taken hold in the state at the time of the forecast.

“Omicron is the big difference,” Ehrlich said. “Caseloads have risen a lot more than we anticipated in November.”

COVID cases recently have been running at the highest levels seen in the nearly two-year long pandemic. The rampant spread has caused businesses to close or reduce hours. Many schools are struggling with critical staff shortages related to the virus.

Ehrlich said he’s preparing an updated assessment of omicron’s potential economic impact for the state revenue estimating conference on Jan. 14. But he noted that every spike in COVID cases has hurt the economy less than the one before it.

And Ehrlich thinks Michigan is still on track to almost fully recover the 1 million-plus jobs lost during the pandemic by the end of next year.

Michiganders, many of whom will vote in this year’s election, also are likely to feel good about their finances this year if U of M’s forecast comes to fruition. That’s an encouraging sign for Whitmer’s reelection prospects.

Inflation-adjusted, after-tax income is expected to grow steadily over the next two years at a rate twice as fast as in the pre-pandemic years 2017 to 2019.

Blue-collar autoworkers are likely to especially prosper over the next several years. 

“We forecast that employment in transportation equipment manufacturing will come back strong over the next two years, with plenty of overtime to make up for the current disruptions and rock bottom inventory levels,” the U of M forecast said.

And don’t be surprised if this turns out to be a banner year for Hot-and-Ready pizzas.

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Michigan Advance is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Michigan Advance maintains editorial independence. Contact Editor Susan Demas for questions: [email protected] Follow Michigan Advance on Facebook and Twitter.

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