by Brian Balfour
Senior Vice President of Research, John Locke Foundation
The narrative from the White House and the corporate press is that inflation has been “cooling” over the past several months.
Indeed, the annual and monthly calculated inflation rates have been smaller than the historic highs we saw last summer.
But it’s important to note that the current annual inflation rates are compared to the already elevated baseline from a year ago. For instance, this January’s recently reported annual inflation rate of 6.4% is in comparison to price levels in Jan. 2022.
The Jan. 2022 inflation report showed that prices had risen 7.5% since Jan. 2021. So while more recent inflation rates may be lower, they are in comparison to a higher baseline.
Indeed, today you would need to spend $114 to buy the same ‘basket of goods’ that only cost $100 in Jan. 2021.
This sustained – and definitely not “transitory” – inflation has made households worse off. Real wages have fallen for 22 straight months.
As a result, households are getting tapped out. Credit card debt has reached all-time highs, with delinquencies on the rise. And with interest rates on credit card debt also reaching all-time highs, many households may have dug themselves a hole they can’t get out of. In December, consumer spending fell for the second consecutive month.
Many are resorting to taking second jobs to try to keep up, and in North Carolina this is shown by a divergence in the two job surveys conducted by the Bureau of Labor Statistics. Since June, the business establishment survey has shown an increase in people on payrolls of 92,000, compared to a decrease of 6,000 people saying they are employed on the household survey. The difference of 98,000 can largely be explained by people taking second (or third) jobs, and therefore showing up on multiple payrolls.
Inflation is far from over, and it’s important to look at not just month-over-month, or year-over-year rates to get a feel for how much worse off households are since the significant rise in inflation began.