The discussion around affordability from our point of view is a function of supply and time.
By supply, we are referring to more energy production from a diverse set of resources including renewables, greater access to global supply chains—lower tariffs would help—and more workers, not fewer, organized around a rational set of immigration policies.
Unfortunately, supply side policies to facilitate lower prices are not in the cards anytime soon. As such, time will act as a cruel tyrant that devours much in its path until growth in real wages reestablishes a quotient of confidence that dampens the discontent of the American public.
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This means that the idea of affordability is going to revolve around time. That is, the time it takes for real wages to increase to the point where American households are comfortable with what looks to be a 3% annualized pace of inflation going forward.
A look at real hourly wage growth in production and non -supervisory occupations indicates that wage growth stagnated over the past two years and is now increasing at a slower pace as higher rates of inflation erode the purchasing power of paychecks.
Through the end of September, real wage growth advanced at a 0.8% rate, which is clearly playing into what the majority of American households would define as an affordability crisis.
For this reason, in this winter of discontent, there is little in the near term that will provide much relief to those households and firms that populate the lower spur of the K-shaped economy from sticky and stubborn inflation. Artificial intelligence will make a difference, but that will take time.
