Issues & Insights

Inflation’s Here, Getting Worse, And Could Last Longer Than COVID-19 Pandemic

Gas station in San Pedro, Calif. Photo: Marshall Astor, licensed under the Creative Commons Attribution-Share Alike 2.0 Generic license (https://creativecommons.org/licenses/by-sa/2.0/deed.en).

Both the out-of-touch Biden administration and our betters at the Federal Reserve Board continue to assert that inflation’s no big thing. They’re right. It’s not, unless you work for a living. Then it’s a very big thing indeed.

We were told by all the best “experts” that inflation is ephemeral, a mere blip. The Fed keeps telling us the recent jump in prices is “transient.” Democrats and many of their media friends continue to insist it’s not an issue. Just keep spending, they say. Stimulus!

But calling the recent burst in inflation “transient” or any other such euphemism to suggest it’s like a brief summer cold is not exactly accurate. In fact, it’s wrong.

The recent surge in inflation isn’t likely to go away anytime soon. Indeed, it’s even worse than the numbers now indicate.

In the most recent Consumer Price Index data, year-over-year inflation hit a tad above 5%. That’s the biggest spurt since 2008. In April, it hit 3.6%, nearly twice the recent average. Meanwhile, core prices (excluding volatile food and energy) are rising at their highest pace since 1992, when then-Fed chief Alan Greenspan was forced to nearly double interest rates to kill what many feared would be a bad bout of inflation.

This is no coincidence. In May, real average hourly earnings fell 2.8%, even as employees worked more hours. Let that sink in: Those earning an hourly wage actually took home less pay for working more.

As inflation rises, real wages — that is, earnings adjusted for inflation — inevitably go down. Just as in the 1970s, low-skilled, less-trained and less-schooled workers can’t keep up. Their wages fall behind. That’s the real danger here.

And inflation is likely to remain entrenched. As the widely respected economist John Cochrane, a senior fellow of the Hoover Institution at Stanford University and professor at the University of Chicago Booth School of Business, noted recently:

For 25 years inflation has seemed stuck on a downward trend. Those of us who worry about it seemed like end-of-the-world sign-holders that couldn’t leave the 1970s behind. It’s hard to buck the trend. A famous economist advised me to give up studying inflation — inflation is 2%, he said, that’s all you need to know. Apparently a new constant of nature. 

Well, apparently not. Inflation can happen, and there is an economics of inflation. Right now it’s pretty obvious — supply constraints both natural and artificial, coupled with rampant demand. 

Cochrane calls it “the end of ‘the end of inflation’.”

It may be even worse than it seems. Consider the following:

As home prices soar into the stratosphere, by 12.5% over the last year alone, the Bureau of Labor Statistics maintains that housing costs are up just 2.2% this year and rents up just 1.8%. This is farcical.

And it isn’t just housing.

“The BLS also claims food prices are up 2.2% year over year,” according to a report from Phoenix Capital Research. “Anyone who’s been to a supermarket in the last few months knows this is a load of bull.

“Case in point, agricultural commodity prices (the stuff that is used to MAKE food) are up over 50% during the same time period. Corn prices are up 75%, Soybean prices are up 46%, Livestock prices are up 30% and Sugar prices are up 18%.”

Oil is up. Many of the mainstays of our economy are surging. We hope we’re wrong, but this has the look of a trend, not a blip.

Give credit to the Washington Post’s Heather Long, who tweeted this:

What costs more now? It’s murky to compare to May 2020, but people still feel these increases.

Car rental 110% (y/y)

Gas 56%

Used cars 30%

Laundry appliances 27%

Airfares 24%

Auto insurance 17%

Moving 16%

Bacon 13%

Hotels 10%

Furniture 9%

Bikes 10%

Whole milk 7.2%

Clothes 6%

So this sudden surge of inflation means that working men and women are actually earning less in inflation-adjusted terms since last year, despite working more hours.

As most economists rightly note, inflation once entrenched isn’t easily eliminated. It tends to hang around. Anyone who was an adult in the 1970s can tell you how pernicious and persistent the rise in inflation was.

Why should you care? Because in 1973, when inflation first became a serious problem, the U.S. and much of the western world sank into a productivity and growth slump that really never ended. Before 1973, GDP rose at a rate of 3.8% a year; since then it’s grown 2.6%. Productivity, the main driver of standards of living, grew 3.8% before 1973; about 1.6% after.

This is what you get, inevitably, from so-called progressive economic experiments conducted by the far left, which now means the entire Democratic Party. Massive amounts of spending. Suffocating regulation. High taxes. More out-of-control money printing by the Federal Reserve. Severe wage controls and, eventually, price controls.

And, eventually, failing companies will be taken over by big government. It’s official: We’ve now forgotten all the lessons of the 1970s and 1980s about the evils of big government and socialism.

Inflation is merely a symptom of all this. Just like respiratory distress is a symptom of COVID-19.

And, just as with COVID-19, we have a vaccine against inflation. It’s called deregulation, low taxes, spending cuts, rule of law and sound money. Together, these things can beat inflation, restore growth and productivity, and put Americans back to work. If not, our inflation pandemic will only get worse, and last for years.

— Written by the I&I Editorial Board

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6 comments

  • Actually inflation works in your favor if you are a government employee, particularly if retired or nearing retirement, because you will get a much larger pension. At least in California, where most public employees are exempt by law from the Social Security payroll tax system. Most city, state and county employees in California can retire after 20 years and get a pension based on their last 5 years salary, which gets boosted by generous overtime and vacation and sick leave that is accumulated. So, a prison guard with a salary of $65,000 can retire with a pension of $135,000, and annual increases for inflation compounded over 20 years can result in a pension of several times that with a generous dose of inflation. Everything the Democrats do is to benefit their base of public employees, who help them “win” elections. Contrast that with private sector workers who instead of getting benefits based on their top 5 years, get an average Social Security payout based on their top 38 years, with zeros averaged in if time was taken out to raise families, etc. The government pays them less with inflation, as their wages of 38 years ago recede into nothingness with generous doses of inflation. The Dems call this “equity”.

    • California is not a good representation of the country, it is LaLa land.

  • We have been experiencing inflation for at least a year and half (maybe longer/?) just ask anyone who does the grocery shopping. The absurd notion that inflation is just now starting is ridiculous. When groceries, pharmacy products and things in the big box stores double in price for no good reason (pandemic only a little) then you have inflation. It is the poor and middle-class that feel it the most because we are the ones that go to the stores regularly and our salaries are not going up to match (BTW $15. per hour is not the answer for many reasons.) Feeding a family today or buying medicine is a real “iffy” thing for families. The rich don’t see it directly because they are too busy working and absorbed in themselves to notice. They just demand more money and get it. What does a person making over $1 million dollars know about inflation – just what they see on TV or read in the Wall Street Journal. Talk to a the person who runs the household if you want to know when there is inflation. I know I am trying to eat healthy and afford it at the same time – Geesh.

    • That’s why back in 2020 pandemic era I began to stock up, Use common sense people.

  • I have been stocking up as I first read about this. I don’t think we have much to worry about for many months. How about you?

    • Aric7, My husband and I decided many years ago to keep an inventory of certain products. It is not big but enough for us to get by for awhile. I am not nervous about any issues (pandemic, mother nature events or whatever) just being careful because we cannot always get to the store. The TP or Paper towel shortage never affected us so I will continue to keep my inventory.. It is NOT hoarding it is just simply being smart. If you do it over time it does not affect anyone.

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