Missoula, MT (KGVO-AM News) - Inflation; it’s the nation’s number one issue, both economically and politically, but how did we get to this point where our spending power has eroded so dramatically?

KGVO News went to Dr. Patrick Barkey, Director of the University of Montana Bureau of Business and Economic Research on Thursday for some answers.

The Government helped to Spend us into Inflation

Barkey started with the Federal Reserve and runaway federal spending during the pandemic.

“You start with the failure of the Federal Reserve to recognize early that inflation was erupting,” began Barkey. “Then we had the delay in the policy response of the Federal Reserve, switching over from stimulating the economy, which occurred during the pandemic, to getting to neutral for now trying to restrict the economy.”

Get our free mobile app

All That Stimulus Money Added up to Inflation

Barkey then took the Federal Reserve to task for not acting quickly enough to respond to the burgeoning rate of inflation.

“The failure of the Federal Reserve to recognize inflation in time to act on it is certainly a piece of that, of course,” he said. “What the Federal Reserve should have been reacting a little bit better to was the extraordinary amount of stimulus put into the economy with not just one stimulus bill, but actually three, and you could argue that that mistake is still happening today, as we see the passage of things like the Tips Act, and the so called Inflation Reduction Act.”

Barkey expressed alarm over the impact the current inflation is having on Montana’s current economy.

“When you take a look at what personal income, that’s the income made by Montana households after tax, and you correct that for inflation and you express that on a per capita basis, we are running through 2022 is something like a 9% decrease in that figure, which is a good measure of averaging purchasing power of household income,” he said. “That is a rate of increase, which, quite frankly, the economy hasn't seen since the 30s.”

Barkey said the labor market and reduced job availability may come into play as the recession drags on.

“The one driver inflation now that has me worried more than anything has been what I would consider to be inflation expectations particularly regarding the labor market,” he said. “When you have workers who are starting to see inflation eroding their purchasing power and are demanding as they can be in a tight labor market like we have today, and demanding bigger salary increases, that's a cost driver. That is something that is very powerful and it can be very sustained and difficult to bring back under control.”

It May be up to All of us to Get our Economy Back on Track

Barkey said a recession and a decrease in consumer spending may be necessary before inflation can be brought under control.

“That's called a decline in spending and then things go in reverse,” he said. “Some people call that a recession. It depends on what happens, but it's certainly a slowing force in the economy and that's what getting inflation under control is really all about, that’s slowing down spending and slowing down the economy.”

Hear Dr. Barkey’s Montana Economic Minutes every weekday on KGVO’s Montana Morning News Show.

24 Closed Missoula Businesses We Wish We Could Bring Back

We asked Missoulians which of their favorite businesses that have closed down would they like to see make a triumphant return. Here's what they came up with.

28 Missoula Businesses That Opened, Changed Ownership, or Changed Location

Yes, there were quite a few Missoula businesses that have closed in the last two years. But what about the Missoula Businesses that opened?

More From Newstalk KGVO 1290 AM & 98.3 FM