Friday’s inflation report delivered an unwanted surprise for the White House, Federal Reserve and investors.
While many economists and some administration officials had expected prices to show some signs of cooling, they got the opposite: a re-acceleration in price growth that makes it more likely the Fed is going to have to slam the brakes on the economy as it looks to slow the fastest pace of inflation in 40 years.
As one left-leaning think tank put it, the report was “pretty ugly.”
Like it or not, the world of five dollar a gallon gas is upon us. It’s been that expensive in some Midwest and Western states for a while now but it’s finally come to roost in New York State and about half of the rest of the state’s in America.
It often makes me feel like the world is closing in a bit on me, that everything is further drive away then it used to be. While it’s rare that I do much motoring around town, it makes me want to carefully pick and choose when I really want to head out of town or to the supermarket for a big shop, which buys less and less these days as I try to stretch it out more days.
In the grand scheme of things gas prices aren’t that big of a drain on my bank account. Yes, gas is a big portion of my road trips camping in the back country but food and beer are also big costs as are repairing broke equipment and my truck. But it’s not like I’m spending money on hotels or fancy attractions. The swimming hole in the woods is still free and my parents get me a state park pass each year.
Still it bothers me every time I put gas in my truck and see the big numbers on the pump, like a $115 for a full tank on my gasser truck. Or how even the very basic necessity products at Walmart come with bigger and bigger price tags. It’s not that I’m not making more money these days – but you would hope that extra money would be available to invest for a better tomorrow.
I’ve always thought that the reason for earning more money was to have more to save and get closer to future goals. Even COLA adjustments I’ve always tried to put mostly towards boosting further savings and investments. But with inflation and expensive gas, the old ways of always dumping more money into the markets might not be possible. It’s a bit frustrating.
WASHINGTON — At her confirmation hearing in early 2021, Treasury Secretary Janet L. Yellen told lawmakers that it was time to “act big” on a pandemic relief package, playing down concerns about deficits at a time of perpetually low interest rates and warning that inaction could mean widespread economic “scarring.”
A year and a half later, prices are soaring and interest rates are marching higher. As a result, Ms. Yellen’s role in crafting and selling the $1.9 trillion American Rescue Plan, which Congress passed in March of last year, is being parsed amid an intensifying blame game to determine who is responsible for the highest rates of inflation in 40 years. After months of pinning rising prices on temporary supply chain problems that would dissipate, Ms. Yellen acknowledged last week that she had gotten it “wrong,” putting the Biden administration on the defensive and thrusting herself into the middle of a political storm.
“I think I was wrong then about the path that inflation would take,” Ms. Yellen said in an interview with CNN, adding that the economy had faced unanticipated “shocks” that boosted food and energy prices.
The nonpartisan Congressional Budget Office estimates that real gross domestic product, or GDP, will grow 3.1% in 2022, it said in a Wednesday report. “In CBO’s projections, the current economic expansion continues, and economic output grows rapidly over the next year,” the CBO said in its report. The upbeat tone of the report appeared included an implicit prediction that the Federal Reserve will be able to raise interest rates without tipping the U.S. economy into a recession.
While I think the economy may slow in coming months, I am not sure if that will lead to stagflation. Stagflation only exists if inflation doesn’t slow when the economy slows. Much of the current bout of inflation is due to high demand and not enough supply. A recession is likely to lead to significant demand destruction, especially with oil and energy usage but also most other material goods.
In the 1970s, stagflation was a relatively new thing. The federal reserve didn’t really know the way to break inflation is to slam on the brakes on economy really hard, no matter how hard the politicians and the public scream in pain. But Paul Volcker taught the economic world a lesson — it’s possible to break inflation — if you slow the economy enough by high enough interest rates. Jerome Powell is a Republican, and there is no reason to think he will be gentle at raising interest rates to keep President Biden happy from the mobs of angry home-builders, automakers and farmers likely to storm the Washington Maul.
Personally, I am glad the stock market is down. With inflation being so high these days, you got to save money wherever you can. Getting a little more stock for less money is a good thing. With most things going up in price these, the stock market is a refreshing change of pace.
