Inflation compounds

Investment Analysis Clubs Macro Economic Trends and Risks
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Even though the rate of inflation is not as high as it was, it is not negative. Inflation compounds.

The typical American household must spend an additional $11,434 annually just to maintain the same standard of living they enjoyed in January of 2021, right before inflation soared to 40-year highs, according to a recent analysis of government data…

Inflation is the main reason Americans express pessimism about economy despite its bright points, which also include stronger wage gains in recent years…

But even as inflation is now cooling rapidly, many consumers say they aren’t feeling it, with a new Bankrate survey finding 60% of working Americans say their income has lagged inflation has over the past 12 months…

Average hourly pay for workers has increased robust 13.6% since January 2021, although that lags the 17% increase in inflation during the same period…

DB2

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~chuckle~ No chance there is any bias in that study, right?

The analysis, from Republican members of the U.S. Senate Joint Economic Committee, taps government data such as the Consumer Price Index and Consumer Expenditure Survey to examine the impact of inflation state by state.

Except, that it explicitly doesn’t use the CPI or CE.

More:

*The most common source used to measure household spending is the
BLS Consumer Expenditure Survey (CE). Unfortunately, the CE does not
measure household spending at the state level, so our analysis instead
relies on state-level personal consumption expenditures (PCE) reported
by the Bureau of Economic Analysis (BEA).
While the CE and PCE both measure spending, the spending levels
they report are considerably different; PCE consistently suggests higher
aggregate spending levels than the CE, and these differences have
been widening over time.2 The disparities stem from the fact that the
CE is a survey of households while PCE is derived using government
surveys of businesses, and the two sources have differences in their
coverage, definitions, and measurements.3 For instance, PCE includes
spending by the institutionalized population and military personnel
while the CE does not, PCE includes spending by the government and
employers on behalf of households while the CE does not, and

In other words, we used inflation data from businesses and the government instead of consumers (which is an admittedly lower number) to claim this additional spending. For full transparency, they try to back into a more realistic number but when you start with flawed and misleading data, it is difficult to trust the result - even if it was not put out by the the Reps.

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The basic concept is this: wages have not kept up with inflation.

Using the Bureau of Labor Statistics CPI inflation calculator we find that the inflation between January 2021 and October 2023 is 17.6%

At the St. Louis Fed site we find that average hourly earnings between 1/21 and 10/23 went from $29.92 to $34, an increase of 13.6%

DB2

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That’s NOT the argument made in the OP, but OK. I can dance to the new tune too.

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Americans need an extra $11,400 today just to afford the basics

Compared with 2021, the typical household must spend an additional $11,434 annually just to maintain their standard of living, analysis shows.

A mish mash of statistics and rhetoric?
First it says, since 2021: Americans need $11,400 more to afford the basics. Then it says: Americas need $11,400 to maintain their standard of living. So, which is it? "cause they ain’t the same. Has sustenance and cheap rent actually gone up $11,400 per yr in 2 years? Ehh… maybe. Seems high to me. Unless you are really poor or in the neighborhood, your standard of living is malleable.

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It will be good if/when it happens. It should be noted that current cumulative wage gains (13.6%) are already lower than those projected by Bankrate (14.2%).

A recession/soft landing would slow both inflation and wage gains. I’m not sure where that would sort out, but I’d guess wages would suffer more.

DB2

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I have no doubt that USians have seen inflation in their expenses, and that they are angry about it. It beggars the imagination to think that it’s $11,000 per year just to stay even.

The article says these expenses account for 80% of the typical family checkbook: “ food, transportation, housing and energy, ”

90% of people do not move from their current abode. Half of those own houses, so their expenses for “housing” don’t change a lick. Gas prices are just about the same as in 2021. Currently average $2.90/gal for regular, in 2021 from $2.68 to $3.70 on the west coast.

Energy is also higher, but quite modestly. Energy costs in 2021: 11.8¢/kWh, now 12¢. I guess transportation is higher, although we just flew to NY and from Boston back home and the prices were roughly equal to what we paid 4 years ago. But OK, maybe they’re higher on average, dunno.

Food, ah, there’s the rub. That’s the one that everyone sees, and yes, it’s higher. But $200 a week higher? I don’t think so. I”m not arguing that prices haven’t increased, but I do think this is a loaded survey designed to delivery a particular headline, which CBS happily delivered.

(If you’ve moved and need a new mortgage, then certainly your costs are higher, potentially much higher. Housing prices soared, interest rates took off, etc. But that belongs to a small minority of people, and usually if it’s a corporate move the company helps you with those costs, and otherwise it’s a personal decision. Much of the problem in the housing market right now, we are told, is that nobody wants to move because they don’t want to give up their 3% mortgage. How are they paying an extra $11k in costs?

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I guess it depends. If they were spending about $52,000 a year on average, then 21% inflation would indeed come to something near $11,000.

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One factor is taxes. They go up with higher prices, higher income and higher property values.

Another factor is that over 35% of the households rent. Since January 2021 rents are up 18%, which is higher than average inflation and wage increases.

DB2

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Compared with 2021, the typical household must spend an additional $11,434 annually just to maintain their standard of living, analysis shows.

More “SHOCKING!”, “ALARMING!!!” media hype. That number is useless without stating what their spending was previously. Is that $11K on top of $20,000? Or is it $11K on top of $100K?

In other BREAKING NEWS!!!, reportedly 200 MILLION PEOPLE are impacted by winter weather in the winter.

Steve

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