(Brad Polumbo, Foundation for Economic Education) Are rising consumer prices becoming part of the “new normal?”
We’re now on Day 500-and-something of “15 days to slow the spread,” and month four of the supposedly “temporary” spike in consumer prices. But the “temporary” nature of this spike is becoming increasingly dubious.
Indeed, newly released data confirm that just like politicians’ pandemic power grabs, price inflation from government meddling is becoming endemic in its own right.
The Labor Department just released the Consumer Price Index (CPI) for July, an imperfect but still useful tool that measures price changes in a bundle of typical consumer goods. It shows that prices increased 0.5 percent from June to July, which is an annualized rate of consumer price inflation of 5.4 percent.
Some goods saw particularly acute price increases in July, such as energy, food, housing, used cars, and other essentials.
Altogether, last month’s high rate of consumer price inflation matches June’s price gains and ties the record for the biggest 12-month spike recorded since 2008. As the below graph makes clear, this is becoming a broader trend, not just a one-or-two month “temporary” uptick like so many claimed.
Of course, inflation figures and discussion of rising prices can often sound detached and academic. But this phenomenon touches all of our lives. Price inflation erodes the real wealth and purchasing power of everyday Americans, essentially making us all poorer as our dollars no longer go as far. High levels of price inflation also mean that wage gains are canceled out.
“People don’t value the number on their paycheck in itself,” FEE’s Peter Jacobsen, an economist, explains, “what people care about is what their paycheck buys them. This concept is called your real wage.”
When wages rise but prices rise even higher, “anyone who thinks the worker is better off is suffering from the money illusion,” he continues. “They’re confusing dollars for well-being.”
So, all Americans, even those who have seen wage increases over the last year, should be concerned about rising prices for the goods we rely on. But we also shouldn’t forget that, ultimately, these levels of consumer price inflation are, in part, driven by government policy.
As Jacobsen has explained at length, the Federal Reserve attempted to “stimulate” the economy by creating trillions of new dollars out of thin air. In doing so, it inevitably contributed to price increases as more money chased the same amount of goods. So, for at least part of our current inflation woes, you can thank the folks in Washington, DC.
Sadly, the harmful upward trend in consumer prices is likely to continue until the politicians and bureaucrats finally admit their policy approach was wrong. And don’t hold your breath waiting for that to happen.