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OPINION: Inflation hits its highest level since 1981

By Robert Romano

Date:

Imminent recession looms

Consumer inflation reported by the U.S. Bureau of Labor Statistics [on July 13] ticked up to 9.1 percent the past 12 months, the highest since 1981. It has to be a crushing blow to any chances of avoiding a recession in the U.S. this year.

Food prices are up 10.4 percent unadjusted the past year. Energy has increased 41.6 percent. Gasoline is up 59.9 percent. Electricity prices have increased 13.7 percent. Piped natural-gas service is up 38.4 percent. Shelter prices have risen 5.6 percent. Transportation is up 8.8 percent. Medical-care commodities are up 3.2 percent, and medical-care services have increased 4.8 percent.

“In 2022, the story involves price increases not seen in the U.S. for more than 40 years...”

 

You get the picture. All of that comes in just the past year. In 2021, inflation was largely correcting from near-deflationary conditions in 2020. No longer. In 2022, the story involves price increases not seen in the U.S. for more than 40 years, coming on the heels of the continued supply crisis and food and energy shortages.

Making matters worse, producer inflation increased 11.3 percent the past year, as the increasing costs on employers will continue to weigh on labor markets that are already showing signs of contraction.

In addition, increasing interest rates are still nowhere near real inflation rates, with 10-year treasuries still at [about 3] percent. The effective federal funds rate currently is just 1.58 percent, according to the Federal Reserve Bank of New York.

As a result, interest owed on debt — a mechanism for removing dollars from the financial system — have come nowhere near close to sucking all of the additional dollars that were created by COVID-stimulus actions by Congress and the Federal Reserve.

The national debt has increased by $7.3 trillion since January 2020 to $30.5 trillion, of which the Federal Reserve monetized half, or $3.4 trillion, by increasing its share of U.S. treasuries to a record $5.7 trillion.

As a result, the M2 money supply has increased by $6.4 trillion to $21.75 trillion, a 41 percent increase. More than 90 percent of every new dollar of debt was paid for by printing it.

The inflation that has resulted is little wonder. And neither are its impacts.

The news comes as 58 percent of Americans say America is already in a recession, according to a recent Economist-YouGov poll, despite continued happy talk from the Biden administration.

Just in June, President Joe Biden was saying that a recession this year was “not inevitable.”

Adding to the misery, 44 percent of respondents are saying the prices of goods and services was the best indicator of a recession with 57 percent saying the current inflation is impacting their lives “a lot.”

All this has to also be bad news for Congressional Democrats hoping to hold onto meager majorities in the House and Senate in the November midterm election. The American people will get to register their approval or disapproval for the state of the economy. That usually impacts the incumbent party. The question is by how much. Stay tuned.      

Robert Romano is the VP of public policy at Americans for Limited Government (ALG). The organization says it is a “non-partisan, nationwide network committed to advancing free-market reforms, private property rights, and core American liberties.”