Economy

Inflation Surge May Come From Railway Strike

Douglas A. McIntyre

Published: September 11, 2022 8:27 am

There has been the most modest of hopes recently that inflation’s march upward might slow. Most of this is due to the drop in oil and gas, which may be temporary, based on, among other things, a Russian driven shortage across Europe. Broader supply chain disruptions have eased, but ever so slightly in most cases. Sharp inflation could flame again as early as this month.
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A strike by railway workers against the railroads that transport food, manufacturing components, coal, and even hazardous waste may bring traffic to a halt as early as next week. A total of 90,000 workers could walk off the job. The American Association of Railroads forecast the strike could cost the economy $2 billion a day.

One of the reasons economists have been optimistic about an improvement in the rising cost of living is more abundant access to energy. Because coal travels by rail, the optimism would be wiped out by a strike.

This is the harvest period for most of America’s farmers. They may find they cannot get their crops to markets.

The component shortage that has damaged the car industry may be exacerbated by a drop in needed parts that are delivered by rail. Car prices, a primary cause of the recent inflation, began to cool. That period may be over just as it began.

The most effective battle against inflation is probably one being fought by the Fed. As it raises rates, at levels which have not been in place for well over a decade, it was assumed price increases would cool, and that unemployment would tick up. A railway strike may wipe out whatever progress the central bank has made, but unemployment could rise nevertheless as businesses buckle because they do not have access to the goods they sell.

The railway strike may only be an annoyance if there is a settlement after a few days. It appears, however, that management and labor are far apart. Ironically, inflation is among the reasons workers want higher compensation.

Over the last year, inflation was caused in part by unexpected problems led by the energy shortage. Another unexpected problem may be the next trigger.