Laserfiche WebLink
workers have varying housing inflation pressures depending on renter <br />vs. ownership status, when the latter’s mortgage rates were set, and who <br />has what kind of property tax protection. <br /> <br />To set monetary policy, it is likely that the Federal Reserve board will <br />keep paying closer attention to the PCE to guide it in raising interest <br />rates. Nonetheless, governmental salary and pension policy decisions <br />and labor agreements will be driven by the CPI. Because housing prices <br />have rocketed by double-digit rates in the last two years, it is possible <br />that the CPI measure will keep running hotter than the PCE for months <br />to come. Explaining these nuances to policymakers, workers and retirees <br />will be a continuous challenge for public-sector managers, pension <br />officers, labor representatives and budget staffers. <br />Rearview Mirror or Foggy Windshield? <br /> <br />Putting aside the CPI-PCE measurement gaps for now, and expecting that <br />the CPI will continue to be the index of choice among states and local <br />governments, the challenge for policymakers, labor negotiators and <br />pension officials will be how to best make COLA adjustments when the <br />underlying inflation rate has spiked. Although CPI escalation is expected <br />to subside in 2023, it’s unlikely to swoon to the idyllic 2 percent level <br />that most central bankers deem optimal. So what’s the fair solution to <br />adjusting pay and pension benefit rates? Should we focus on past, <br />present or likely future inflation rates? <br /> <br />For those who think the economy is about to head into a real recession <br />with widespread layoffs and a hard contraction of economic activity and <br />tax revenues, along with other ugly outcomes that crimp public <br />employers’ ability to pay, the problem is whether we should focus on the <br />clear but cluttered rearview mirror or try to peer through a foggy <br />windshield. But for those concerned about workers’ purchasing power, <br />the permanent pocketbook damage is already done and needs to be <br />offset permanently. Arguably, even those who have locked in their