We’re now at the point where there are really no good solutions
There’s no escaping the ravages of inflation. Far from “peaking” as some hoped, the consumer price index accelerated in May, rising at a 12.3% annual rate, the government reported Friday. Not only are the costs of necessities becoming more unaffordable, so are the costs of escaping by taking a vacation or by curling up on the couch with a video.
Inflation has become embedded in the economy and it’s affecting more of the goods and services, especially the items that we can’t do without: Shelter, food, clothing, transportation, and health care.
As I wrote last month, the rising cost of renting or owning a primary residence is particularly worrisome. It’s the biggest item in the consumer-price index’s market basket. What’s more, the price of shelter is “sticky’—meaning once it goes up, it stays up.
It’s persistent, which is the opposite of “transitory.” That’s a big problem for American consumers, not to mention the headaches it creates for policy makers at the Federal Reserve who are assigned the job of bringing down inflation to tolerable levels.
Flexible prices (items that change prices frequently, such as gas and food) have long been driving inflation, but sticky prices (infrequent changes in prices, such as rents or subscriptions) have become a real contributor in recent months. The sticky prices CPI, produced by the Atlanta Fed based on data from Friday’s CPI report, rose at an annual rate of 7.5% in May and is up at a 6.8% annual rate over the past three months, a 40-year high.
You get things like fuel (up 4.1% in June), foods and beverages (1.1%), household energy (3.7%), and airline fares (12.6%) are big drivers. Vehicles were up .9%, but, really, they mostly hit their big peaks. Now it’s smaller increase, mostly to do with fuel costs of delivery and transportation
The Fed is trying to reduce demand for these items by raising interest rates, but it’s hard to see how that will work. On the margin, people can cut back. They can buy cheaper items at the grocery store, or squeeze another year’s life out of the old truck, or move in with a friend, but they’ll still need to eat and have a roof over their heads and heat the house and get to work. These are necessities, not luxuries.
Prices are rising for these items not because demand for them has suddenly surged, but because the supply has been constrained, frequently by global forces, including the COVID pandemic, the war in Ukraine, and other factors, including droughts and heat waves.
It’s a good point: demand is not higher, it’s that the supply is constrained, much like with available fuels. And, we all know that this is occurring around the world, it’s not just the U.S. It’s just that our inflation is one of the worst in the 1st World
For the most part, inflation is being caused by shortages of supply, not excesses of demand. But the only way the central banks can bring supply and demand back into balance is to destroy demand by any means necessary.
In practice, that means millions of people around the world will be required to lose their jobs. But I thought the problem was a shortage of workers…
Well, that sounds fun. I know we, and most other dealers, are at about 65 to 70 percent staffing in all departments. There’s no need for more. How many times have you gone to a fast food place and it’s drive through only? I wanted speakers installed in my car, the available appointments are over two weeks out, when you could buy the product and it would be installed right there before COVID.
Americans accumulated extra savings during the pandemic, but that money is fast dwindling because of inflation.
Some 70% of Americans are using their savings to cover rising prices, a recent Forbes Advisor survey of 2,000 U.S. adults concluded. Among those polled, older adults were more likely to say they have left their savings intact.
In fact, the personal savings rate for April 2022 hit 4.4% — the lowest level since September 2008 — down from 6% at the beginning of the year, according to the Bureau of Economic Analysis, a department of the U.S. Department of Commerce.
And the political elites do not care a bit.
Good news, lumber prices are tanking because homes are not being built much anymore….oh, wait #BidenEconomy https://t.co/LPFFWKUjir
— William Teach2 ??????? #refuseresist (@WTeach2) June 11, 2022
Read: Bidenflation: It’s Now Rooted In Necessities Of Life »