On Friday, the Bureau of Labor Statistics revealed that consumer price inflation in the United States has reached a rate of 6.8% — the largest year-over-year increase since June 1982, as well as the sixth straight month in which inflation remained above 5%.
Inflation is the erosion of a currency’s purchasing power over time. More dollars chasing fewer goods implies a diminished value for each dollar — resulting in pinched budgets for Americans who do not experience wage increases to match the rising price levels.
As summarized by CNBC, the following are some of the largest consumer price jumps between November 2020 and November 2021:
- Gas — 58.1%
- Used vehicles — 31.4%
- Hotels — 25.5%
- Meat, poultry, and fish — 13.1%
- Furniture and bedding — 11.8%
- New vehicles — 11.1%
- Domestic services — 10.2%
- Jewelry — 6.7%
- Electricity — 6.5%
- Food — 6.1%
- Apparel — 5%
- Milk — 4.6%
- Fruits and vegetables — 4%
According to a recent Gallup poll, American families — especially less advantaged ones — are feeling pressure from the rising prices:
45% of American households report that recent price increases are causing their family some degree of financial hardship. Ten percent describe it as severe hardship affecting their standard of living, while another 35% say the hardship is moderate…
Lower-income households are most likely to have experienced financial hardship due to price increases. Seventy-one percent of those living in households making less than $40,000 a year say that recent price hikes have caused their family financial hardship. That compares with 47% of those in middle-income households and 29% in upper-income households.
The effect of inflation is more pronounced upon poorer households because they tend to have more of their wealth saved in the form of dollars — whether in cash, checking accounts, or savings accounts — than wealthier families, which are more likely to hold retirement accounts, property, or other assets that accrue interest or increase in value over time.
Indeed, low-income earners typically spend a greater percentage of their wages on food, fuel, and other basic necessities — the same items that are becoming less affordable due to inflation.
American economic officials have grown accustomed to the reality of persistently high prices.
“I am ready to retire the word transitory,” Treasury Secretary Janet Yellen said at a recent event sponsored by Reuters. “I can agree that that hasn’t been an apt description of what we are dealing with.”
“What we don’t want to have develop is a wage-price spiral, in which inflation becomes its own self-reinforcing kind of phenomenon that would become chronic in the U.S. economy — something endemic,” Yellen added while endorsing the Federal Reserve’s decision to begin tapering its aggressive monetary stimulus.
Federal Reserve Chair Jerome Powell told members of the Senate Banking Committee that policymakers should scrap the term “transitory.”
“I think the word transitory has different meanings to different people,” Powell explained. “To many, it carries a time, a sense of short-lived. We tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation. I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”