Higher labor costs and "shrinkflation" - Inflation beyond the headlines

Forget about gas prices and food prices for measuring longer-term inflation. Those commodity prices will be volatile and can create inflation volatility. Focus on the hourly compensation paid to employees. This is where the rubber hits the road. 

Higher labor costs without productivity increases will squeeze business profit margins unless those costs are passed onto consumers. The question is whether firms have to market power to increase prices. The current answer is yes. Higher inflation leads to more pricing confusion and the chance for firms to increase prices. The pandemic has also created shortages which make consumers more willing to accept general price increases.

Additionally companies have become wiser about fooling consumers through "shrinkflation". Keep the prices the same but make the package smaller. This is the way that inflation is not always noticed.