Inflation is increasing in the US for these reasons 1:16
(CNN) -
If you've tried to buy a car ... a house ... remodel your house ... put gas in your car ... shop at the supermarket ... eat at a restaurant ... or buy a lot of anything, then you know.
Everything seems to be more expensive.
Restaurants affected by the covid closures now say they may need more help from the government to overcome rising food costs.
Grain?
An increase of 93.8% in one year.
Beef?
41.4% increase in one year.
Butter and cooking oil?
34.8% increase
It is not anecdotal. It is a fact.
The consumer price index, the country's key indicator of inflation, saw the biggest jump in a month in 13 years in June.
Prices rose 5.4% over the past year, also the biggest jump in 13 years.
Gasoline prices top the list, up more than 45% compared to a year ago.
But there is an important asterisk there.
Gasoline prices are often relatively volatile and a year ago they were extremely low.
advertising
Each inflation story is slightly different, but they all share the pandemic.
Writing about inflation, CNN's Chris Isidore explained the difficult situation that has led to soaring car prices:
Car prices are rising due to strong consumer demand for cars, coupled with limited supply due to a shortage of computer chips needed to build the cars. Car rental companies, a key seller of used cars, already sold much of their car fleet last year to raise cash during the pandemic and now they don't have enough cars to rent.
This is why car prices are so high, and why it matters
Post-pandemic premiums
.
Edmunds.com did an analysis for CNN Business and found that some one-year-old cars sell for more than new ones, during the height of the pandemic.
In my opinion, that is similar to the stories of people who pay six or even seven figures above the sale price of houses.
People who come out of the pandemic and spend the money they saved or the money they receive from the government is essential for all of this.
But Isidore writes that there is serious doubt about whether this price bubble will be permanent:
While prolonged inflation may be a cause for concern, there is reason to believe that this recent price hike, while steep, will be temporary. Inflation is skyrocketing in part because prices are returning to normal levels after the economy slipped into recession. That makes year-on-year comparisons seem electric, and they manifest as big increases.
People are traveling.
His example is the travel industry, where prices have risen, but not compared to the pre-pandemic.
Airfare increased 24.6% in the last 12 months, while hotel and motel prices increased 15.1%. But both are still below where they were in June 2019, before the pandemic.
The resurgence of vacation travelers and the government aid that continues to flow to them has made airlines like Delta profitable again, according to information released by the company on Wednesday.
But, according to the
Wall Street Journal
, they won't be back to normal until business travel returns.
Isidore speaks to economists who think this is a post-covid demand binge and that supply will return to normal as production and supply chains return to normal.
He also talks to economists who believe that higher prices are here to stay.
Labor shortages have led companies to offer higher wages, for example.
They probably won't start cutting wages for a few months.
Some of this is permanent (and good for workers who make the most money!).
America desperately needs 1 million more construction workers
Price hikes that you are not supposed to notice.
I also read this CNN Business report on how supermarket chains may have added a few pennies here or there to prices that were already going up for other reasons.
"Stores are betting that most customers will not resist price increases because they need to buy food, after all, and will still consider it a bargain compared to eating at restaurants," writes Nathaniel Meyersohn.
"Restaurant food prices are growing faster than grocery store prices, according to Labor Department data, giving grocery stores more flexibility to charge you more."
Plot: This too will pass.
The Federal Reserve acknowledges inflation, but is not going to do anything about it anytime soon, according to Federal Reserve (Fed) Chairman Jerome Powell, who testified on Capitol Hill on Wednesday.
The Fed could "hit the brakes" on the economy by raising interest rates, although that would have its own set of chain reactions.
Inflation, Powell told the House Financial Services Commission, "has risen markedly and is likely to remain high in the coming months before moderating."
The bottlenecks that are partially responsible for inflation should disappear and there are other elements of the economy - the labor market - that need a further recovery.
Inflation is now a political weapon.
But the fear of inflation is not just an economic debate.
Republicans have used inflation and, in particular, gasoline prices to argue against additional government spending by the Biden administration.
Democrats see their effort to remake the country's infrastructure with a $ 3.5 trillion investment for a more just and greener world as a solid investment.
Republicans generally disagree and will use inflation to fight spending.
"If you look at inflation and the first six months of this year, it's just as bad as it was in the last six months of 1981," Senate Minority Leader Mitch McConnell said on Capitol Hill.
Current President Joe Biden was a senator in Washington in 1981 and knows that inflation helped sink President Jimmy Carter's reelection bid in 1980.
Current inflation versus inflation in the 1980s.
I asked Isidore, who pays a lot of attention to inflation, about the McConnell comparison and he gave me some important context:
There is no question that direct cash to Americans, like the extra $ 1,600 Biden spent earlier this year or the new child credit, gives more money to spend. More spending generates more demand, and if the supply is not significantly higher, more demand means higher prices.
Higher wages to attract workers will do the same.
But we are far, far, far from 1980. One difference: a much larger percentage of the workforce had union contracts that had cost-of-living adjustments or COLAs built in at the time, so higher inflation meant higher wages, it meant more inflation. This is what is known as an inflationary spiral.
There was also much less competition from foreign products. Then wages could go crazy. I am old enough to remember those days. To paraphrase Lloyd Bentsen: I know inflation in the eighties. The inflation of the eighties was not my friend. This is not the inflation of the eighties.
The inflation rate for all of 1980 was 13.5%, while in 1981, as McConnell raised it, it was 10.3% for all goods, throughout the year. And there was no black swan, a unique event in a century that distorted comparisons year after year.
Today, while the 12-month variation in June was 5.4%, the annual rate of increase in the course of the first half of the year was only 3.4%. It is much worse than it was before the pandemic. But not a crazy two-digit number with exceptions in some categories.
There are also Democratic critics of Biden's policies.
In particular, Larry Summers, President Bill Clinton's former Treasury Secretary left out of the Biden administration, who has been raising the alarm about inflation caused partially by government spending for months.
The US housing market is so attractive that buyers are paying up to $ 1 million above the asking price
"These numbers and the rigidity of the labor market and the behavior of the housing markets and asset prices are increasing in a way more worrying than I was worried about a few months ago," he told Politico on Tuesday.
"This increases my concern about a scenario of economic overheating. There are huge uncertainties in the outlook, but I think the focus of concern at this time should be on overheating."
Summers met with Biden's aides at the White House on Tuesday.
Perhaps they were trying to get him to stop raising the alarm about inflation while pressuring fellow Democrats to accept new government spending.
High prices, meanwhile, will be something everyone sees and pays for.
Inflation
