What do you do when you are sitting in the Oval Office, the inflation rate is 8.3 percent, and the stock market is down more than 1,200 points? You throw a garden party to celebrate the so-called Inflation Reduction Act, featuring James Taylor singing about suicide and the speaker of the House having a Jeb Bush moment, begging for applause.
The Consumer Price Index, the key measure of inflation, was up 8.3 percent in August, despite a 10.6 percent decrease in the price of gas. Inflation was driven primarily by the annual rate of increase in the price of food at home (up 13.5 percent), shelter (up 6.1 percent), and medical care (up 6.2 percent). Even though the price of gas was down for the month, it remains 27.1 percent higher than it was a year ago. The fact that inflation remains high, despite a drop in the price of gas shows that inflation continues to spread in “core” areas and will more than likely linger for quite some time.
The impact of inflation continues to hit the poorest Americans the hardest and is now starting to impact higher-income Americans as well, driving people out of their homes pushing them into poverty.
Per NPR, “Americans across racial and ethnic groups say affordable housing is a serious problem . . . and eviction rates are back to pre-pandemic levels, with 3% of Black renters and 2% of Latino renters saying they have been evicted in the past year.” Thirteen percent of black renters say they are facing the threat of eviction.
The number of foreclosure starts—when the first public foreclosure notice happens—is up 219 percent since the start of the year. “What’s more, the number of properties that had foreclosure filings is up 153% from the same period last year.” The same report notes 96 percent of major metro areas saw an annual increase in foreclosure filings, “with foreclosure rates highest in Illinois, New Jersey, and Ohio.”
For those who can afford to stay in their homes, they may not be able to afford their utility bills. Bloomberg News reports 20 million U.S. households, approximately 1-in-6, have fallen behind on their utility bills. It is the worst crisis the National Energy Assistance Directors Association has ever documented. “I expect a tsunami of shutoffs,” says Jean Su, a senior attorney at the Center for Biological Diversity, which tracks utility disconnections across the United States.
The number of Americans falling into poverty has increased as well. The official poverty rate in the United States was 11.4 percent in 2020. By February 2022, the rate had increased to 14.4 percent.
As prices continue to rise, Americans are borrowing more and adding to their collective debt. “American households added 2 percent on average to their debt burden in the second quarter of 2022 . . . the collective debt of all Americans is $16.15 trillion . . . put into context: Americans have nearly as much debt as China’s entire gross domestic product (GDP).”
Inflation is also bad for the health of Americans, especially the poor and older Americans. A survey of 2,000 U.S. consumers found that nearly half of “Americans are eating food past their expiration and ‘use-by’ dates in an attempt to stretch their (food) dollars.” In addition, around 40 percent of respondents say they are “buying less food because of higher prices.” Among 55- to 64-year-old population, the number rises to 52 percent.
It gets worse. According to the same survey, consumers are also switching to cheaper foods that have inferior ingredients and fewer nutritional benefits.
A side effect of inflation is “shrinkflation,” when consumer products get smaller in weight, size, or quantity, while their prices stay the same or increase. The top categories where consumers are seeing shrinkflation are “snacks, pantry items, frozen foods, meat, and bread and pastries. In response, 49% of consumers say they purchased a different brand, while 48% say they opted for a generic brand over a name brand, and 33% chose to buy in bulk.”
Unfortunately, inflation is going to get even worse, even if the price of gas continues to decline. The Biden Administration seems hell-bent on pumping even more money into the economy, so we will have even more money chasing fewer goods.
On August 24, Biden announced he would “cancel up to $10,000 of federal student debt for most borrowers, and up to $20,000 for a subset of debtors. The relief is limited to those who make less than $125,000 per year, or married couples or heads of households earning less than $250,000.”
Per the Penn-Wharton budget model, Biden’s new student loan forgiveness scheme could exceed $1 trillion. That is another $1 trillion that would be injected into the economy. This will continue to push inflation in the wrong direction, regardless of how high the Fed raises interest rates.
If the threatened rail workers and port workers strikes had taken place, the economy would have lost $2 billion per day and nearly 30 percent of goods shipped in the United States would have come to a standstill, causing even more inflation and likely a deep recession. Fortunately, the unions have agreed in principle to a proposal, but the agreement still needs to be voted on by the union members.
What will Biden do when inflation exceeds 10 percent? Perhaps another garden party with a more relevant musician, some elephants, and clowns.