The current inflationary environment is not something we’ve seen since the 1980s. For higher education institutions who rely on inflation data to accurately budget and plan for the next year, identifying the most appropriate inflation measure for them is critical.
Although CPI is often used, we believe that the Higher Education Price Index (HEPI), an inflation measure that captures the expense structure of higher ed institutions, such as utilities, supplies and materials and salaries, to name a few, is a better fit for these institutions who wish to maintain purchasing power and achieve intergenerational equity. The latest HEPI forecast of 5.0 percent—the 2nd of three estimates produced annually before the “final” HEPI report for the preceding fiscal year is published in December—presented a couple areas that we find of particular interest and will be monitoring over the next several months:
- Small increase in Faculty Salaries: The latest HEPI estimate shows faculty salaries, which comprise 35 percent of the HEPI value, haven’t accelerated as one might expect this fiscal year, moving from just 1.0 percent in the 2021 HEPI Report released last December to 2.1 percent in this month’s forecast. In fact, the average full-time salary has decreased when adjusting for inflation. A recent report by the American Association of University Professors (AAUP) that collected employment data from 929 colleges and universities over the 2020-2021 fiscal year found that “real wages for full-time faculty decreased 0.4 percent, the first decrease since the Great Recession, after adjusting for inflation (the Consumer Price Index, or CPI, increased 1.4 percent in 2020). In nominal terms, average wages for all ranks of full-time faculty increased 1.0 percent, the lowest increase since the AAUP began tracking annual wage growth in 1972. While there were slight increases in some full-time tenured positions, the growth was too slow to hold its own against the speed of inflation.”1
- Large increases in Supplies & Materials and Utilities: Supplies & materials gained 19.4 percent and Utilities gained 40.1 percent for the current HEPI estimate compared with 3.5 percent and 15.0 percent detailed in the 2021 HEPI report. These components make up 6 percent and 7 percent of the index value respectively. These large gains are not surprising given that state of inflation coupled with the supply chain issues that have been plaguing the world since COVID emerged, but we will continue to watch as we believe they will continue to increase over the next 6-12 months.
It is important to note that while the changes of these three HEPI components piqued our interest with the release of this month’s estimate, there are a total of eight that contribute to the calculation of the Index. We look forward to sharing the 3rd and final HEPI estimate with you later this August/September and the full HEPI report in December.
Would you like to read more on this topic? Check out Don’t Let Inflation be a One-Two Punch for Your Endowment.
- https://www.aaup.org/report/annual-report-economic-status-profession-2020-21