Inflation - Hot or Cold?; COLA
Let's talk inflation. I get the feeling that most people thinking the proposed salary pool looks great or reasonable also assume inflation is under control or will trend down, especially with talks of zero minimum raise. The four decades of low inflation is expected to continue indefinitely. My stance is not to say inflation can't remain low, it just doesn't seems like there is much consideration for the opposite scenario. In contrast, my head space is in the 1970 - 1980 era of persistent inflation, high interest rates, etc. We may have different opinions, but this is room to have a discussion. The numbers below compare different compounded salary pools with expected average inflation rates and provide a break-even amount for maintaining purchasing power since 2020. I personally think inflation rate will remain in the 4% range or run hot, but I feel like I am a very small minority that think this. I believe this may be a reality regardless of what contract we get. I hope I am wrong. Does anyone else have concerns with potential elevated or hot inflation? Are people even paying attention or waiting until the news to report hot inflation (usually only national and not local inflation)?
The charts below provide historical inflation rate data for over 100+ years, both nationally and locally. I believe that it helps put into perspective the potential risk for persistent inflation. The last 6 months of inflation rates for Puget Sound were 3.9%, 4.9%, 4.5% (bi-monthly) and Nationally were 2.2%, 3.3%, 3.9%, 4.4%, 3.5%, 3.4% (monthly). I pointed out the 7% level because inflation has broken a 40 year trend of low inflation below 6%. People will have different opinions stating different reasons and contributing factors from different eras. I am curious to hear your thoughts.
Source: https://fred.stlouisfed.org/series/CUURA423SA0
Source: https://fred.stlouisfed.org/series/CWUR0000SA0
This inflation information leads into the next topic of COLA. COLA thresholds are currently set at increments of 6% and are intended to provide relief for hot inflation. They were redlined and changed to 12%, 22%, 32%, 42%. COLA is practically insurance for events that may happen once in 30-50 years (e.g., 1910s, 1940s, 1970s with >70% inflation). Nobody cares about it until we need it and it is too late. For reference, during the June 2020 - June 2024 period, CPI-W (National) increased 22.7% (5.2% annual average) and CPI-U (Puget Sound) increased 26.2% (6% annual average). The timing was slightly off and national inflation was not quite high enough for COLA to kick in. The current contract has gaps each year between the 3% salary pool and 6% threshold, and high inflation within that gap resulted in the loss of purchasing power over the past 6 years. The redline for COLA creates a much bigger gap between the proposed 5-7% pools and the incremental 10-12% thresholds, going from moderate insurance to dirt cheap insurance that is substantially less likely to kick in. We can end up in a similar situation where we fight to get back lost purchasing power, but eat the cost when it happens. Does anyone realize that the company made this move to be a step ahead of us? Does anyone care about this or do we just deal with it in a future contract negotiation?