Connect with us

Inflation surges to 31-year high. What the jump in consumer prices means for your pocketbook, Joe Biden’s troubles

Inflation surges to 31-year high. What the jump in consumer prices means for your pocketbook, Joe Biden's troubles


Inflation surges to 31-year high. What the jump in consumer prices means for your pocketbook, Joe Biden’s troubles

Fed to slow economic aid as inflation fears riseThe Federal Reserve will begin dialing back the extraordinary economic aid it’s provided since the pandemic erupted last year, a response to high inflation that now looks likely to persist longer than it did just a few months ago. (Nov. 3)APWASHINGTON — Inflation over the past 12 months surged to a 31-year high as rising prices undercut President Joe Biden and hurt consumers despite other evidence the U.S. economy is rebounding from the pandemic. The consumer price index increased by 0.9% in October, the U.S. Bureau of Labor Statistics reported Wednesday, leaving inflation 6.2% higher than a year earlier. It’s the largest 12-month increase since 1990. Over the past year, as the U.S. has battled the COVID-19 pandemic, the cost of energy, food, transportation and other must-haves have spiked. The reasons include supply-chain breakdowns, labor shortages and a sudden burst of spending after widespread lockdowns.For weeks, the White House has downplayed rising inflation as a temporary issue, predicting consumer prices will fall in 2022 and spotlighting an inflation slowdown that occurred in September. Supply chain shortages are impacting the global market, here’s whySupply chain bottlenecks are creating shortages and price inflation around the world. Biden released a plan that could help ease the jam at LA ports.Just The FAQs, USA TODAYBut in a statement Wednesday, Biden called reversing the inflation increase “a top priority for me.””Inflation hurts American pocketbooks,” Biden said, pointing to the rising energy prices as the biggest driver – though adding that the price of natural gas has fallen since the latest data was collected. Biden said he’s directed his National Economic Council to “pursue means” to try to further reduce these costs and asked the Federal Trade Commission to “strike back” at any market manipulation or price gouging in this sector.Fed moves: Fed says it will reduce purchases of bonds as inflation rises, economy recovers following COVID-19 recessionBiden also pointed to his recently approved $1.2 trillion infrastructure bill, which he will sign in to law Monday, arguing it will bring costs down further by dedicating money to modernize supply chains. The president visited a Baltimore shipping port Wednesday to stress that point. “Too many people remain unsettled about the economy – and we all know why. They see higher prices,” Biden said. “We’re tracking these issues and trying to figure out how to tackle them head-on.”Here’s how the inflation is playing out for Americans and Biden politically:I noticed my grocery bill is higher. Am I imagining things?Nope. The price of food at home is up 5.4% over the last 12 months. That includes an 11.9% increase in the price of meat, poultry, fish and eggs. It’s the largest 12-month increase in grocery prices in more than three decades, according to the Bureau of Labor Statistics.Not everything is spiking. For example, dairy prices haven’t budged much, rising only 1.8% over the last year. Are wages covering the price increases?It obviously depends on your individual situation.This much we know: Many companies have raised their minimum wages in recent months as they grapple with labor shortages. Companies like Walmart, Target, CVS and Starbucks have done so.Those wage increases help workers pay for the extra costs of goods, but the pay increases may be translating into price hikes, as well, as companies look to make up the cost of higher wages.Unsnarling a supply chain: Before busy holiday season, Biden lays out new efforts to ease supply chain congestionOverall, the average American worker’s wage increases have been usurped by price increases. Real average hourly earnings – a metric that accounts for the impact of wage and price increases – declined by 1.1% from October 2020 to October 2021, according to the Bureau of Labor Statistics.When accounting for the fact that the average workweek shrunk slightly during that period, real average weekly earnings declined by 1.4%.What does surging inflation mean for Biden politically? For Biden, who has seen his approval numbers sink since August, the rising inflation has handcuffed his ability to get credit for an otherwise improving economy. It presents a major warning sign for Democrats, who already face an uphill battle to reclaim control of the Senate and House in next year’s midterm elections. Polling pain: Inside Biden’s falling poll numbers: 5 reasons why the president’s approval ratings have droppedBiden has argued “the Biden economic plan is working,” pointing to unemployment that has dropped significantly since took president took office and rising wages. He’s tied that progress to actions he took to vaccinate Americans and pass a $1.9 trillion COVID-19 rescue plan in March. There are several positive economic trends that historically boost presidencies: the U.S. added 531,000 jobs in October, dropping the unemployment rate from 4.8% to 4.6%, the lowest since March 2020; unemployment claims that reached a 20-month low; and a strong stock market, which saw the Dow Jones Industrial Average surpass 36,000 for the first time last week.But those gains are getting overshadowed by rising inflation, which Republicans have seized on for months.Republicans – not Biden – are winning the messaging battle. Only 31% of registered voters approved of Biden’s handling of the economy in a poll last week from USA TODAY/Suffolk University, compared to 60% who said they disapproved. The poll found Biden’s overall approval rating dropped to a new low of 38%. The economy and inflation both ranked among the top five of the areas voters said they would like to see Biden address over the next year.Losing voters: How Democrats lost voters in Virginia and New Jersey, and what it means for 2022In last week’s Virginia’s governor’s race – narrowly won by Republican Glenn Youngkin despite Biden carrying the state by 10 percentage points in 2020 – the economy rated as the top issue for 33% of voters, according to NBC exit polls, topping all other issues including taxes, abortion and education. Youngkin won 55% of these voters, compared with 45% for Democrat Terry McAuliffe. If these trends hold during the 2022 midterms, it could prove disastrous for Democrats.Does surging inflation mean the economy is struggling? Economists say rising prices at the gas pump and grocery store are the result of a pandemic still posing challenges following the rise of the COVID-19 delta variant – not an indicator of an economy getting worse. Mark Zandi, chief economist of Moody’s Analytics, said the inflation surge should be short-lived. He predicted costs will start dropping in early 2022 and “by this time next year, certainly by 2023,” the U.S. should return closer to normal inflation.”I think this is entirely the result of the delta wave of the pandemic, and if it sticks to the script, I think inflation will moderate. We’re seeing the worst of inflation right now,” Zandi said. The pandemic upended supply chains, which in turn, led to higher prices on goods. For example, Zandi said, the pandemic forced the closure of a Malaysian semiconductor plant that produce chips for the Ford F-150, the most popular vehicle in the U.S. It meant fewer cars produced and a surge in vehicle prices. “It’s a shock to the supply-side of the economy that lowers growth and raises inflation,” he said.Job growth: Economy adds 531,000 jobs in October as COVID-19 cases drop, unemployment falls to 4.6%Companies in the retail and hospitality industries raised wages to fill worker shortages, passing costs on to the consumer, he said, while rising energy costs resulted from increasing demand.In an economic recovery, he said inflation rebounds slower than the gross domestic product and jobs. He noted that the last two dynamics have already happened.If the pandemic fades, “then these problems iron out,” he said.How much are energy prices fueling inflation?A good amount. The energy index – the government’s gauge for the prices Americans pay for gasoline, heating and other energy – has soared 30% over the last year.The average price of gasoline is now over $3.41 per gallon, the highest it’s been since 2014, according to AAA. Americans are paying nearly 50% more for gas than they paid a year ago, according to the Bureau of Labor Statistics.While gasoline prices often fall in the winter as demand declines, the price of heating your home is likely to spike this year.Pain at the pump: Gas prices are at a 7-year high. Here’s how smartphone can help save on fuelIn October, U.S. prices of natural gas were about three times higher than at that point in 2020. That marked a 13-year high, according to the International Energy Agency, an organization that advises governments on energy policy.For years, natural gas prices had been low due to a huge increase in output in the U.S. But a combination of factors, namely including rising demand overseas as other countries transition off of coal, is leading to a global spike in the price of natural gas. “Nobody’s been paying close attention to their natural gas heating bill,” said Rob Thummel, an investment manager focusing on energy at Tortoise Capital. “In fact, in a lot of cases, your bills have been going down.”That blissful period has come to an end. Thummel predicted that if it’s a normal winter, the average customer’s bill could increase by 50% to 75%.Will holiday shopping be more expensive?Definitely.Retailers facing labor shortages have increased wages and they’re not likely to fully absorb those extra costs. They’re also dealing with supply-chain challenges that, in some cases, are limiting the availability of products.The bottom line: Expect higher prices and fewer sales on items like apparel, toys and sporting goods.”This past year has provided retailers with the unexpected opportunity to adapt their pricing strategies,” Cowen retail analyst Oliver Chen said Tuesday in a research note. “The dual forces of supply-chain disruptions and inflation has allowed retailers to take price increases and, arguably more importantly, reduce the frequency and depth of markdowns. We believe retailers could take advantage of the current environment to adjust the consumer mindset to no longer shop for promotions.”Can the Federal Reserve fix this?This might be beyond the Fed’s reach.Normally, the Federal Reserve will increase interest rates to rein in inflation. But that might not strike at the heart of the problem.”Rate hikes might not be enough to reverse inflation because the sources of inflation involve supply-chain bottlenecks and fiscal spending, which are two areas that the Federal Reserve doesn’t control,” said Nancy Davis, portfolio manager of the Quadratic Interest Rate Volatility and Inflation Hedge Exchange-Traded Fund (ETF), in a written analysis.How much are car prices factoring in?A lot. The spike in car prices is having an outsize impact on the broader rate of inflation.The average prices of used cars and new cars have jumped 26.4% and 9.8%, respectively, over the last 12 months. The global chip shortage sparked by the pandemic has constrained automotive production, leading to fewer vehicles and higher prices.Sticker shock: Some new-car buyers are paying more than sticker price: Pickups, SUV shortage causes ripple effectThe average price of new vehicles reached an all-time high in October for the seventh straight month, clocking in at $46,036, according to Cox Automotive’s car-valuation service Kelley Blue Book.Average new-vehicle prices could continue rising in the coming months before leveling off around $50,000, estimated Kevin Roberts, director of industry insights and analytics at car-buying site CarGurus.Who is most affected by surging costs?Not surprisingly, the nation’s most significant surge in inflation in 30 years is disproportionately affecting the poor and working class.Americans in the bottom one-third of income distribution are feeling the pressure of higher costs the most, according to Zandi, because they have less of a financial cushion. That reality is compounded by the fact that inflation is affecting pocketbook expenses such as food and gas.Although low-income Americans built up some savings through stimulus checks and Biden’s child tax credits, Zandi said, rising inflation forced them to spend through that money quickly.  Those most affected often include families of color or rural white Americans in low-wage industries such as hospitality, retail, health care, child care, recreation or personal services. Zandi said inflation is generally not an issue for Americans with the top one-third of wealth”Your high-income households, they’ve got a lot of savings, assets and cash,” he said.Is the price of everything skyrocketing?Luckily, no. The good news is that many areas of the economy are not experiencing significant price increases.The cost of medical care, for example, rose only 1.7% over the last year. Given the significant impact of health care costs on Americans’ pocketbooks, that’s a relief.Reach Joey Garrison on Twitter @joeygarrison.

Source link

Continue Reading
You may also like...
Click to comment

Leave a Reply

Your email address will not be published.


To Top
error: Content is protected !!