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Opinion from a Libertarian ViewPoint

What a 40-Year Inflationary Peak Is Doing to Your Wages | The Libertarian Institute

Posted by M. C. on December 16, 2021

https://libertarianinstitute.org/articles/what-a-40-year-inflationary-peak-is-doing-to-your-wages/

by Ryan McMaken

According to new data released Friday by the Bureau of Labor Statistics, price inflation in November rose to the highest level recorded in nearly forty years. According to the Consumer Price Index (CPI) for November, year-over-year price inflation rose to 6.8 percent. It hasn’t been that high since June 1982, when the growth rate was at 7.2 percent.

November’s increase was up from October’s year-over-year increase of 6.2 percent. And it was well up from November 2020’s year-over-year increase of 1.13 percent.

infla

This surge in price inflation comes only a week after Fed chairman Jerome Powell backtracked on earlier comments dismissing the threat of price inflation and suggested previous attempts to define recent inflation as “transitory” weren’t quite accurate. Declaring last week that it was “a good time to retire the word,” Powell continued his pivot to addressing the danger of inflation “becoming entrenched.”

It’s unclear to what degree inflation might already be entrenched, but year-over-year growth in the CPI has been over 5 percent for the past six months—and on a clear upward trajectory.

At the same time, inflation is taking a bite out of workers’ purchasing power. November’s numbers on average hourly earnings suggest that inflation is erasing the gains made in workers’ earnings. During November 2021, average hourly earnings increased 4.8 percent year over year. But with inflation at 6.9 percent, earnings clearly aren’t keeping up:

earnings
Source: BLS: Table B-3. Average hourly and weekly earnings of all employees on private nonfarm payrollsConsumer Price Index.

Looking at this gap, we find that real earnings growth has been negative for the past eight months, coming in at –2.1 percent year-over-year growth for November 2021. November was the eighth month in a row for negative growth in earnings.

earn
Source: BLS: Table B-3. Average hourly and weekly earnings of all employees on private nonfarm payrollsConsumer Price Index.

Moreover, according to the Conference Board, U.S. salaries are growing at a rate of approximately 3 percent this year.

Combined with November’s unemployment rate of 4.2 percent, November’s inflation growth puts the US misery index at 10.82. That’s the highest level since June of this year, and similar to the misery index levels experienced when the unemployment rate surged in the wake of the 2008 financial crisis.

misery

In addition to CPI inflation, asset-price inflation will likely continue to be troublesome for consumers as well. For example, according to the Federal Housing and Finance Agency, home price growth has surged in recent months, with year-over-year growth now coming in at 16.4 percent.

Don’t Expect Much from the Fed

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