I have been talking and writing about the inflation rate in the U.S. (and around the world) for a year now and I am worried about it. That makes me a little different than say Jay Powell over at the Fed who keeps saying that inflation isn’t quite a “real thing” and it’s “transitory”. If you don’t know what that means, it means that it’s just a fad and isn’t going to last. If you believe that one, well there’s that proverbial swamp land in Florida that I’d like to sell you.
The inflation rate has been climbing at the fastest pace in over a decade, as Americans pay more for gas, groceries, and many other items. The rate of inflation has slowed over the past few weeks, but don’t get too excited by that news. Inflation will be hanging around at high levels for quite a while longer: this year, next year, and even beyond that. If inflation were a stock, I’d say invest in it. It’s guaranteed to be going up!
Why Aren’t “We” Facing Inflation Facts?
We, and I mean the “we’s” that truly matter like the Jay Powell’s of the world, don’t enjoy facing reality too much. It creates waves and tensions and makes us wonder about their proficiencies in doing their jobs. They don’t like that.
Since no one really knows the future (yes, I admit I don’t actually know), they can hedge all their bets and make the monetary decisions or lack of them under a cloak of hopeful statements. They can make words like “transitory” seem to mean something. The real reason “we” don’t face inflation is fear!
With prices still rising at nearly the highest rate in more than 12 years, Americans are paying more for everything: from hamburgers to haircuts, and a lot more. Consumers are starting to think that higher inflation may be with us for a while. Are they right? Is that what you think and you hear?
The Facts Can’t Be Denied
Overall, prices are up 5.3% in the last 12 months. That’s down just slightly from June and July, when prices were climbing at a pace of 5.4%. Still, the inflation rate is high. It has averaged around 2% annually for years and years and that 2% number is the actual goal that the Fed has set as acceptable inflation for us all. My math says that 5% or more is waaaaay more than acceptable.
Shopping for groceries or gasoline lately? They are among the big drivers of that inflation. Gas prices are up almost 43% from a year ago. Beef prices are up more than 12%.
Yes, it is true that food and energy costs are often volatile, so if you take those out of the equation, so-called core inflation was 4% percent over the last 12 months. That’s still double the Federal Reserve’s long-term target!
Even the cost of a haircut is way up. Across the nation, those prices are up almost 6% this year. I think those who are growing their hair longer or losing it may be ok with that.
Because of all that, we started to “help” folks by sending them money, checks, and all kinds of things to get them back on their feet. We even got thousands of dollars in “stimulus” checks. We, my wife and I, even got them and we are not high on the list of those in desperation.
Hey, I am retired and not looking for work, but no, I am not sending that money back.
Our government was even paying bonuses for those out of work so that some actually were getting more unemployment compensation when out of work than when they held a job! That’s a living wage on steroids for some people.
That sounds like a not-so-well-thought-out plan that may haunt us all for a long time. Who is going to pay for all of that?
Look at the Basic Math
The national debt is a number I can’t even say out loud. I have always been a supporter of government help for people to deal with disasters and intentions here are all good I am sure. But let’s get real. The national debt, which was less than $6 trillion when Bill Clinton left office, is now over $29 trillion today – and climbing. It will be generations before we ever make it go away or even get it near what it was in 1998 and my bet is on it never happening.
Just Print More Money?
We do it all the time these days…we just print more money. If the money supply increases faster than real output does then “ceteris paribus”, or “all else being equal”, inflation will occur.
The problem is this: If you print more money, the amount of goods out there you buy doesn’t change. When you print money, households will have more cash and more money to spend on goods. If there is more money chasing the same amount of goods, companies that produce goods will increase prices. That’s one way inflation appears.
Look Around and What Do You See?
I swear to you when I drive around town all I see are “help wanted” signs and incredible signs like “now starting pay at $15.00 an hour”. That’s for jobs that were paying just minimum wages a few months ago. Now I am not against paying better wages, but I have to ask the question here: Who is really going to fund all of these wage increases?
You can bet that it will be you and me as employers are not going to just absorb giant payroll increases into their bottom lines which are already suffering drastically. Better wages mean higher prices. Higher prices mean inflation and even if you earn more, you will be paying more, so who really wins here?
I’m waiting…take your time before you answer.
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The Federal Reserve Bank of New York just came out with a survey of regular people like you and me. They generally see prices staying higher for a long period of time, longer than people like Jay Powell and the Fed are willing to admit. On average, consumers expect the inflation rate a year from now to be running at 5.2%, almost as high as it’s been all this summer. And three years from now, consumers think inflation will still be at 4%.
The Fed keeps a close eye on consumer expectations because if people think prices are going to keep climbing, that can become a self-fulfilling prophecy. So the Fed is certainly on watch for that. It doesn’t see signs of that happening just yet, though. Go figure?
Inflation…what are your thoughts? Are you counting pennies or are you thinking that if your paycheck goes up, all your problems are solved? What is your plan to defend your dollars these days?