Economists who predicted “peak inflation” were right on one side: Inflation continues to peak, with Friday’s Labor Department report showing the Consumer Price Index at a 40-year high of 8.6% year over year. What gradual spending gave Americans in new welfare and benefits, it robbed him of a lower standard of living.
Energy and food prices accounted for a large part of the increase in May, but that’s a cool relief for consumers. Americans used to be able to substitute low-cost protein when beef prices soared. But everything in the supermarket has become more expensive in the past year – eggs (32.2%), chicken (16.6%), milk (15.9%) and even soup (13.9%). Low-paid workers are being crushed by Bidenomics.
Economists who claimed that inflation was temporary and driven by increases in select categories such as used cars, belatedly admit they were wrong. What else can they do? Prices of some commodities have fallen in recent months, but inflation is widening. This is why the so-called core inflation index, which excludes energy and food, has risen 6% over the past 12 months and 0.6% from April.
Rents are up 5.2% over the past year, although housing sites estimate it’s more than 10% in most places. Travel is becoming more expensive, with hotel prices (22.2%), airlines (37.8%) and restaurants (9%) rising. Americans often pay more for less as companies reduce their services – for example, not cleaning rooms daily – amid a labor shortage.
A historically tight labor market has raised nominal wages, but a worker’s wage does not keep pace with prices. Real average hourly wages have fallen 3% over the past year, with two-thirds of that decline falling in the past four months.
One lesson is that gradual spending on welfare and expanded child tax credits in the name of helping workers contributed to inflation that eroded the value of those benefits. Workers would be better off now if Congress didn’t pass $2.8 trillion in Covid “relief” in late 2020 and early 2021. The federal government has $6.7 trillion more in debt than it did before the pandemic, and inflation hasn’t gone down.
Once inflation begins, it gains its own momentum and is not easy to break. The personal savings rate in April fell to 4.4%, the lowest level since September 2008, as consumers spend more on just about everything. Inflation has hurt consumer economic confidence, and one of the risks is that it will cause Americans to reduce their purchases and slow down the economy.
The May inflation report shows just how much the Fed still has to do to bring down inflation. This means higher interest rates, which means greater risks to asset prices and the economy. Markets took a head on Friday, with stocks down nearly 3% and the tech-heavy Nasdaq down 3.5%. Has anyone other than green energy subsidies benefited from Biden’s economy?
Democrats owe West Virginia Senator Joe Manchin a thank you for saving them from worse inflation if they exceed $4.5 trillion in rebuilding better spending. Mayo’s report should kill the last desperate remains of the BBB.
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Featured June 11, 2022, Print Edition.