The economists predicting “peak inflation” have been right in one sense: Inflation does keep peaking, with Friday’s Labor Department report showing the consumer-price-index at a 40-year high of 8.6% on an annual basis. What progressive spending gave to Americans in welfare and new entitlements, it has taken away in a lower standard of living.
Energy and food prices made up much of the May increase, but this is cold comfort for consumers. Americans used to be able to substitute lower-cost protein when beef prices rose. But everything at the supermarket has become more expensive in the past year—eggs (32.2%), chicken (16.6%), milk (15.9%), even soup (13.9%). Lower-wage workers are getting crushed by Bidenomics.
Economists who claimed inflation was transitory and driven by increases in select categories such as used cars are belatedly admitting they were wrong. What else can they do? Prices for some goods have moderated in recent months, but inflation is broadening. That’s why the so-called core inflation index that excludes energy and food is up 6% over the past 12 months and 0.6% from April.
Rents have risen 5.2% over the last year, though housing websites estimate they’re up double digits in most places. Travel has become much more expensive, as hotel (22.2%), airline (37.8%) and restaurant (9%) prices increase. Americans are often paying more for less as businesses scale back services—e.g., no daily room-cleaning—amid labor shortages.
A historically tight labor market has pushed up nominal wages, but worker pay isn’t keeping up with prices. Real average hourly wages have fallen 3% over the last year, with two-thirds of that decline in the last four months.
One lesson is that progressive welfare spending and expanded child-tax credits in the name of aiding workers contributes to inflation that erases the value of those benefits. Workers would be far better off now if Congress hadn’t passed $2.8 trillion in Covid “relief” in late 2020 and early 2021. The federal government has $6.7 trillion more debt than before the pandemic, and inflation isn’t abating.
Once inflation sets in, it acquires its own momentum and isn’t easy to break. The personal savings rate in April fell to 4.4%, the lowest since September 2008, as consumers spend more on almost everything. Inflation has battered consumer economic confidence, and one risk is that it will cause Americans to reduce purchases and slow the economy.
The May inflation report shows how much catching up the Federal Reserve still has to do to reduce inflation. That means higher interest rates, which means greater risks to asset prices and the economy. Markets took a header on Friday, with equities down nearly 3% and the tech-heavy Nasdaq off 3.5%. Has anyone other than green-energy subsidy firms benefited from the Biden economy?
Democrats owe West Virginia Sen.
thanks for saving them from worse inflation had they passed $4.5 trillion in Build Back Better spending. The May report ought to kill BBB’s last desperate vestiges.
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