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Pandemic-fueled inflation increases financial strain on students

Photo courtesy of Anna Shvets

Consumer prices continue to rise with rapid inflation, especially in food, energy and housing. 

The New York Times reported that prices in October were 6.2% higher than in the previous year — the highest inflation rate since 1990. Experts largely attribute this inflation to supply chain shortages caused by the pandemic.

“So the rate from last year to this year is about 5% which is already twice the rate that [The Federal Reserve] targets, which is about 2%,” said Dr. Samia Islam, a professor of economics at Boise State.

A surge of new demand after economic reopening is also contributing to this issue, according to Islam.

For students, rapid inflation can put further pressure on an already economically struggling demographic.

Gabriel Miklja, a senior at Boise State studying finance with a minor in supply chain management, pointed out that steep inflation has already been affecting students for years.

“You look at textbooks, over the last ten years, they’ve increased 87% or 8.7% a year, tuition and fees 63% or 6.3% a year, and housing which is big here in Boise, 51% or 5.1% a year,” Miklja said, citing estimates from the Bureau of Labor statistics.

Additionally, salaried jobs tend to do a better job keeping up with inflation, but most student employees work at an hourly wage that has likely not kept up with inflation, according to Miklja.

consumer price index continues to rise with inflation
[Photo of a person shopping at a grocery store]
Photo courtesy of Anna Shvets

Many students already face financial struggles, with about 30% of undergraduates borrowing money from the federal government, some in crippling amounts.

The effects of inflation in Boise are not exclusive to students, especially when it comes to housing costs, with rents in Boise up 39% since March 2020.

Inflation combined with a low inventory of buildings has made it difficult for individuals and companies to find locations in Boise and surrounding areas. Inflation in lumber prices also makes it expensive to build new buildings, compounding the issue further, according to Bethany Ineck, the director of economic development for the Boise Valley Economic Partnership, a private nonprofit entity with a board of directors from both industry and city representatives.

“There are lots of things that lead to the overall health of the economy. Inflation pressures are just one aspect,” Ineck said.

Experts are not sure how this inflation will cycle out in the economy due to unique factors created by the pandemic, according to Islam.

Historically, inflation resulting in high production costs might lead to decreased wages or layoffs. However, the opposite problem plagues companies today. Labor shortages continue to affect the nation months after the workforce was expected to return from lockdown.

The inflation does not appear to be as temporary as was predicted, and it seems the inflation cycle will just have to play out as these unknown factors continue to change the status quo.

“We are all stumped,” Islam said.

In the meantime, smaller businesses may bear the biggest burden due to “menu costs,” a term which gets its name from the idea that big restaurants spend a fraction of their money printing menus, but to a small restaurant that could be a higher percentage of their revenue.

“When you have a long inflation cycle, loans can become harder to get for small businesses, whereas if you’re a large establishment, they are probably more or less unaffected by that issue,” Islam said.

As markets fluctuate in the coming months, Dr. Islam hopes people remember that although the value of their homes or cars may seem to be skyrocketing, U.S. dollars are also losing value, meaning that is not always a safe assumption to make.

“Behavioral economics research has shown that we human beings aren’t very good at differentiating between real versus nominal prices when we are trying to make choices or make decisions,” Islam said.

According to Islam, consumers will definitely pay the price for higher production costs in the months to come, and it is important to evaluate real, inflation-adjusted numbers before making big purchases.

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