By Jessica Heebner
As of July 2022, your money is able to buy, on average, 9.1% less than it was last July. What does that mean, exactly? How are you making more money (if you were lucky enough to get any raise at all) but your money buys less? It’s all due to inflation. Stick with me, I know we’re not economists, but inflation is a fairly simple concept. As defined by the International Monetary Fund, inflation is the measure of how much more expensive a set of goods and services has become over a year. The US Federal Reserve targets 2% as an ideal inflation rate for a healthy economy and while most years it hovers around 3%, it has risen dramatically to 9.1% in 2022, the highest inflation rate in 40 years. How does inflation impact your day-to-day life and what are the implications for the scientific research community? In order to give these answers, first we need to understand more about what inflation is.
How is Inflation Calculated?
The most commonly referenced inflation measure is the Consumer Price Index (CPI) published by the US Bureau of Labor Statistics. The CPI tracks the price changes of goods and services in 75 urban areas across the country month-to-month and calculates the average price change of each item, along with the total average change of all goods. This total average increase (adjusted for seasonal price changes) is the inflation rate.
How Does Inflation Impact You?
Of course, 9.1% inflation does not mean that all goods and services are 9.1% more expensive across the board. Depending on your needs, the cost increases might be more or less noticeable, but it is easy to see from the CPI report that many essentials have increased dramatically over the past year (Figure 1).
The costs of housing, food, and utilities have risen by 5.5%, 10%, and 12-30% respectively. One of the most noticeable increases is gasoline, which has increased in price a shocking 48.7%. Inflation doesn’t just mean things are more expensive, it also means certain things are harder to get (which is potentially why they are more expensive). Housing and rental markets across the nation have become incredibly competitive. Due to pandemic shutdowns and supply chain difficulties, many cities nationwide are struggling to add new rental units to meet demand. Harrisburg, Pennsylvania has as many as 19 people competing for one rental unit, 96% of units filled, and no new units added to the market in 2022 making it the second most competitive rental market in the United States.
How is the Scientific Community Impacted?
With the exception of the Departments of Defense and Energy, nearly all government science agencies are set to receive funding increases that do not keep up with inflation. This means their spending power will actually decrease in 2022, meaning funding won’t go as far. An observant reader might protest that using the CPI when discussing scientific funding is disingenuous. The CPI calculates inflation based on the prices of everyday consumer needs; perhaps the costs associated with research are not changing as dramatically. Luckily, to track research inflation and determine appropriate budget increases to maintain purchasing power, the Bureau of Economic Analysis (BEA) publishes and maintains the Biomedical Research and Development Price Index (BRDPI). This index tracks personnel costs, research materials, and equipment costs purchased with NIH funds to support research. The BRDPI was updated in March of 2022 and contains preliminary data from FY2021. Looking back at previous years, it is clear that although the BRDPI is usually close to the CPI, in most years BRDPI is actually higher (Figure 2).
It remains to be seen how the sub-inflation budget increases will impact individual researchers and grants, but it will hinder agencies like the National Science Foundation from starting and funding new research initiatives. Large science projects like observatories and accelerators are falling behind because of the pandemic and being pushed over budget by rising inflation. As supplies and personnel costs increase, the purchasing power of R01s will go down. A grant that was budgeted to fund four members of a lab for five years may no longer be sufficient to cover costs, especially if prices and costs continue to rise.
What Drives Inflation?
In any given year there are a number of forces driving inflation and it is rare that economists agree on the factors that cause increases from year to year. Fiscal policy, demand, shortages, production costs, shipping costs, and numerous other factors can contribute to rising consumer prices. Broadly, there are three major types of inflation: Cost-push, demand-pull and built-in.
Cost-Push – Inflation caused by an autonomous increase in costs in the absence of an increase in demand1. When production costs like materials, equipment, and shipping increase, the cost of consumer goods will also increase so the producer can continue to make a profit.
Demand-Pull – Inflation originating in excess demand1. When consumer demand outstrips production capacity, that is, when people want to buy more than is available or can be made, the cost of goods goes up due to scarcity.
Built-In – Also called wage-price spiral, built-in inflation is a self-sustaining inflationary process where higher wages lead to increased product prices that lead to more wage claims and higher wages1. Inflation that results from persistent cost-push or demand-pull inflation causes workers to expect more inflation and demand higher wages to maintain their standard of living. Higher wages result in higher cost of production resulting in more cost-push inflation.
Which One is Driving THIS Inflation?
Dissertations could be (and probably have been) written on exactly who or what is responsible for the current 40 year high. In general, economists seem to agree that some combination of the “post-pandemic” spending, rising wages, multi-factorial supply chain issues, and the war in Ukraine have contributed to dramatically increasing consumer prices in 2022. As the pandemic (arguably) slows down, consumer demand has risen significantly with many people feeling safer to go out again. However, worker shortages due to COVID19, supply-chain slow-downs, and global supply cost increases have also contributed to price increases. Thus, not only is demand higher, but supply is also lower, and the ability to increase supply just isn’t there in many cases.
Who is Impacted Most?
It is likely no surprise that those making the lowest wages feel the most pain from rising inflation. If you are living paycheck to paycheck already, increasing costs are difficult to contend with. A living wage is the theoretical income level that allows individuals or families to afford adequate shelter, food, and other necessities. For a single working adult in Dauphin County, Pennsylvania, the living wage calculated by MIT for 2022 is $33,473 pre-tax (data calculated annually in the first quarter of the new year). For those most impacted by rising inflation, a small raise is likely to be completely negated by increasing costs. Additionally, if you did not get a raise or your raise was not enough to keep up with inflation, you will be able to buy fewer goods this year despite making more money.
Graduate students across the nation are significantly impacted by rising inflation. With only 2% of institutions2 guaranteeing stipends that exceed the living wage standard and most contracts forbidding students from taking second jobs, many graduate students are left struggling to make ends meet.
What Can We Do?
Be vocal about the struggles you are facing to the people responsible for paying you. Whether you work a full-time job or you are a graduate student, advocating for your needs is important. If they hear no feedback, it seems likely to assume that you are satisfied with your pay. Organize with other students, discuss actionable items, and take steps towards change together. For pressing needs, talk to your advisors and departments. The Lion’s Pantry is available to all Penn State College of Medicine students to address food insecurity on the first and third Wednesday of every month and students can call 211 to be connected to other local community support resources.
TL:DR
- Inflation is at a 40-year high of 9.1%
- Multiple factors are at play, but everything from daily living essentials to research budgets are impacted
- Your 3% raise was a 6% pay cut this year
References
1. Rutherford, D. Routledge Dictionary of Economics. Routledge Dictionary of Economics. 1–502, doi: 10.4324/9780203208878 (2003).
2. Woolston, C. PhD students face cash crisis with wages that don’t cover living costs. Nature. 605 (7911), 775–777, doi: 10.1038/D41586-022-01392-W (2022).
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