Inflation: The Bane of Our Lives

Inflation is becoming the unwelcome guest who just won’t go away.

A spike in consumer prices, which hasn’t been seen in the U.S. for a generation, had been a reassuring message from economists for months. As the economy shifted from virus-related chaos to normalcy, it would prove to be only “transitory,” said Federal Reserve Chair Jerome Powell and White House officials.

However, anyone who has bought milk, gas, or a used car can tell you that inflation has set in. The latest economic reports provide a more discouraging outlook: higher prices will likely persist well into next year, if not longer.

The government announced on Wednesday that its consumer price index rose 6.2% from one year ago – the largest 12-month jump since 1990.

In his role as Obama’s top economic adviser, Jason Furman called it a “huge blow” to the transitory narrative. “Inflation is not slowing down,” he added. ”It’s running at a rapid pace.”

Families tend to feel sticker shock the most where prices are high. Prices of bacon and eggs have risen nearly 12% and 20%, respectively, over the past year at the breakfast table. The price of gasoline has risen by 50%. You will have to spend 15% more on your washing machine or dryer than you would have a year ago. What about used cars? 26% more.

While wages are rising for many workers, they aren’t keeping up with prices. After accounting for inflation, average hourly wages in the United States fell by 1.2% in October 2020 compared with October 2019.

Labor Department’s CPI, the Consumer Price Index, is jokingly called the “Consumer Pain Index.” Sadly, this coincides with the increased spending needs of consumers, especially lower-wage households, right before the holiday season.

There is increasing pressure on the Fed to move away from easy-money policies more quickly as a result of the price squeeze. Additionally, it threatens President Joe Biden, congressional Democrats, and their ambitious spending plans.

Why Does Inflation Happen?

There’s a lot of very good news on the flip side. During the spring of 2020, the U.S. economy collapsed due to COVID-19 lockdowns, business closings, and consumers staying home because of illnesses. The economy lost 22 million jobs. A massive 31% drop in economic output was recorded in the April-June quarter of last year.

The misery was only going to get worse. Investments were reduced. Stocks were not restocked. An economic crisis followed.

By spring, however, the rollout of vaccines emboldened consumers to return to restaurants, bars and shops instead of sinking into a prolonged slowdown. The recovery was fueled by massive government spending and a series of emergency Fed moves.

Demand suddenly spiked, and businesses scrambled to meet it. In August, employers were unable to hire fast enough to fill job openings – a near-record 10.4 million – or buy enough supplies to fill customer orders. In the wake of the economic recovery, ports and freight yards became overwhelmed. This resulted in a snarled global supply chain.

Costs increased. Those higher costs could be passed on to consumers in the form of higher prices, many of whom had saved a lot during the pandemic.

Disclosures

Securities offered through Securities America, Inc., member FINRA (www.finra.org)/SIPC/www.sipc.org), a separate entity. Lee Michael Murphy is licensed with the California Department of Insurance, License 0H18660. Lee Michael Murphy is an Investment Advisor Representative with Securities America Advisors, a registered investment advisor The Free Retiree, Securities America Advisors, and Securities America Incorporated are separate entities. Career advisor Sergio Patterson, attorney Matt McElroy are not affiliated with Securities America Advisors or Securities America Incorporated. Securities America Advisors, Securities America Incorporated, and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation.

Leave a Reply

Your email address will not be published.