CHEYENNE — The Wyoming Economic Analysis Division recently reported that through the second quarter of this year, the state experienced the highest rise in the average annual inflation rate on all items since the 2008 recession.
The average inflation rate of the analysis categories collectively was 7.7%, which was largely due to the severe jump of 23.3% in year-over-year transportation costs.
Local economists attribute this to the rise in gasoline prices, labor shortages, recent national supply chain problems and the overall fallout of the ongoing COVID-19 pandemic.
Recreation and personal care saw the next highest rise in inflation rates at 8%, followed by housing at 5.5%. Apparel was 4.6% higher, medical costs were 3.6% higher and food was 1.9% higher in the state, according to the report.
“That’s going to be expected,” said Wyoming Center for Business and Economic Analysis Director Nick Colsch. “In 2020, we had this massive recession due to the coronavirus outbreak and people staying home.”
The months of quarantining in their residences led to an overcompensation the following year in terms of people taking vacations, both flying and driving, he explained. And with the high demand for travel and a robust comeback in fuel usage, the price of oil was driven higher.
Colsch said although this negatively impacts consumers who lose purchasing power when going to fill up their gas tanks, it benefits Wyoming’s extraction industries and, as a result, state coffers. When the government receives the severance taxes for oil that is shipped out of the state, it brings funding back into the budget for education, infrastructure, public services and more.
“The legislators are going to appreciate it,” he said. “They don’t have to raise their hand anywhere else.”
Even as the state currently benefits, in part, from the rise in transportation costs, it is not a long-term profit.
Colsch predicts gas prices will stabilize in 2022, or at least not rise as sharply.
“And, if anything, that might decrease just because people will have gotten a vacation out of their system, and they’re getting sort of back to normal,” Colsch said.
Christelle Khalaf, the associate director of the analysis center, said she doesn’t see many rates falling, or at least balancing out, until after the new year. With supply chain issues impacting the ability to meet purchasing demands in the United States, shopping for Christmas and other holidays will likely drive prices higher.
“At least going into the holiday season, there might be more increases,” she said. “But I think, in the long run, it will go back to sort of this set target of 2%.”
In the first and second quarters of 2020, most items statewide experienced an inflation rate between 1% and 4%. The only exceptions were transportation, recreation and personal care, which saw negative rates.
The most extreme decrease was experienced in the transportation and oil sector, which saw a drop of 7.3% in the first quarter, and an additional 3.1% in the second.
At one point in April of last year, Colsch reminded, oil futures hit negative, which meant oil companies would pay individuals to store oil and hold onto the asset. He said he was taken aback by the chaotic impact of the drop in value.
This makes the increase of 23.3% this year all the more critical, but Khalaf doesn’t see the rate decreasing again in the next quarter or two. She said it will have to depend on the demand.
“These industries are known for being boom-and-bust cycle industries with a lot of fluctuations,” she noted.
For Wyoming residents looking for relief from higher prices across the board, she said there is no straightforward strategy.
There have been discussions regarding solutions such as increasing wages to match market prices or the Federal Reserve raising interest rates. But she said you have to consider how expectations in the market play a role.
“If people expect the prices to keep going up, businesses are going to increase their own prices, and you might have unions asking for higher wages,” she said. “So, it becomes sort of like a self-fulfilling prophecy.”
These are the kinds of tradeoffs that have to be managed. Raising wages might lead to a continued increase in prices, and increasing interest rates could slow down economic activity. Spending has been necessary in allowing the economy to rebound, but she said it’s furthered issues involving the supply chain in certain ways.
Khalaf speculated the best answer might be in supporting the network through investments in infrastructure. Putting funding toward ports, airports and roads could alleviate some of the pressure.
Until then, no one truly knows how much higher prices could go.