We are seeing more news about rising inflation, but in reality the US data isn’t as bad as the news coverage would lead us to believe. The following table shows the data of seasonally adjusted price changes by month published by the US Bureau of Labor Statistics.
Food prices are continuing to rise at about the same rate each month with a total rise of 5% for the last 12 months. Current shortages of fertilizer and the herbicide glyphosate (which we import from China) could result in additional price increases through next year. Much of the increase in meat and processed food. We can save money on our food budget buying in bulk, particularly dried beans and grains. Learning to cook vegetarian and vegan meals can also save money on food bills.
Not surprisingly, the largest jump in October prices was energy, largely a reflection of the energy crisis in UK and China. The crisis is spreading and we may yet see additional oil and gas prices rising this winter if temperatures are colder than normal. US energy prices are far lower than what Europe and Asia currently face. We should also remember that at the start of the pandemic shut down energy prices plummeted and much of the current increase is making up for it.
The other big jump in prices this year occurred last spring in the used vehicle market as a result of shortages in microchips impacting new vehicles. Starting in July price increases have been more modest and may reflect prices stabilizing as the economy returns to normal. The shortages of semiconductors started before the pandemic and will not be resolved soon or cheaply. Higher demand for semiconductors will get worse as new technology products develop, including cell phones with 5G, robotics, self driving cars, and all those appliances that are connected to the internet of things (IOT). As long as we can keep our old technology going, or don’t need to replace our vehicle we can avoid paying high prices. It remains to be seen where EV will be priced as more companies begin selling them.
A report prepared last June for the White House discusses supply chain issues and recommendations to address them. In the case of semiconductors, higher prices will be us for many years because of the long term investment required. In other cases, improvements should be seen soon, for example reduced bottle necks at the sea ports as a result of funding available from the recently signed Bipartisan Infrastructure Bill.
Labor shortages since the pandemic have led to rising wages for many workers, but inflation will reduce our buying power. One thing we can do is learn to be careful with our money, spending it wisely, being frugal. Americans in particular need to learn to think carefully about our purchases, living below our means in order to save money and provide more financial security for our family. The bottom line is that if Americans are going to address climate change we will pay more for products and services that rely heavily on fossil energy. We cannot continue consuming cheap goods imported from countries and then criticize them for burning fossil fuels. It’s time to wake up and recognize that living on renewable energy will require a totally different lifestyle from the one we’ve been living.
For those that want a deeper dive into inflation stats for USA, based on how they used to be measured way back in 1980, here are some charts.
http://www.shadowstats.com/alternate_data/inflation-charts
Your continuing point stands however… the era of cheap is indeed over.
Thank for the link. I’ve long known that the government budget office liked to play with the numbers. I thought it had to do with keeping inflation ‘appearing’ low so that the government didn’t have to pay as much cost of living adjustment to seniors on social security. I was pleasantly surprised that this year’s cost of living adjustment was 5%.
Perhaps people will begin to think about how they spend money if prices rise.
One of the more significant contributions to price inflation (aka currency devaluation/loss of purchasing power) that often gets completely overlooked is the gargantuan expansion of government spending, spending that is very much supported by the financial industry and its creation of ‘money’ from thin air (huge and ongoing profits for it). This, of course, is not unique to the U.S. but has been occurring throughout the world. We have greater and greater amounts of credit-/debt-based fiat currency chasing limited products leading to price inflation; to say little about the impact this has on our ‘need’ to continue expanding ‘growth’ in order to pay of the ever-accumulating debt (a bit of a dilemma on a finite planet). We have created and are part of a monetary monster…
I always wondered why the quantitative easing of the Fed after the Great Recession didn’t result in more inflation. Combined with almost zero interest rates for banks, one would have thought inflation would have jumped. Perhaps it was because most of the money was given to the already wealthy and all it did was inflate our stock market. It seems it took giving fiscal stimulus directly to households that caused prices to rise. Combined with labor shortages (whose cause I still don’t believe we fully understand) and supply chain issues, we are finally seeing demand outstripping supply and the classic outcome…inflationary pressure.
If Democrats succeed in passing the so called ‘build back better’ bill I suspect the infusion of money to help improve the economics of the middle class families will lead to worsening inflation. It’s not that I don’t agree with the measures proposed, I just think Democrats should pass voting reform to ensure they remain in office as Republicans jury rig state election results, and then pass tax reform to reign in hyper wealth accumulation, and campaign reform to reign in corporate control over government. Only if we can regain control of government can we pass legislation and promote policies that actually address our needs, particularly climate change.
Jody, I believe you’re correct in interpreting a lack of price inflation following ‘quantitative easing’ as a result of money flows into particular assets (e.g., stock market, housing, bank balance sheets, etc.) that do not necessarily contribute to consumer products (except of course housing where we have witnessed significant increases pretty well everywhere; in fact, putting home ownership out of reach of many).
The elite who tend to benefit the most from the monetary policies of the banking/financial industry tend to ‘invest’ their ‘wealth’ in mostly ‘paper’ investments where the impact can be seen but does not affect the non-elite significantly, if at all. There is also not a direct temporal relationship most of the time due to various ‘lags’ in the systems.
Direct payments to families/individuals that will tend to spend that money on consumer products seems to produce the price inflation we are now witnessing. The velocity of money speeds up and consumer price increases follow as we have more money chasing limited goods.
How high such inflation may go is anyone’s guess but I’m thinking that we’re going to witness pretty significant inflation given the diminishing returns we have encountered for pretty well everything. History indicates pretty clearly that the most common route for governments to pursue in such circumstances is increasing currency devaluation (aka ‘money printing’) which translates into increasing loss of purchasing power for everyone. A lot of this price inflation, however, will remain hidden from our everyday narratives because of how manipulated the official statistics have become over the years.
You have hit many nails squarely on the head. I think we are likely going to see increasing inflationary pressure because energy prices will continue to be volatile, because resources will at times unavailable and people will hoard them, and because nations are still in competition mode rather than cooperation mode in addressing climate change and resource depletion. And yes, governments will hide the true numbers in an attempt to make their leadership look more acceptable.