Do you think that Biden’s inflation has affected you? If it hasn’t, then chances are it has negatively affected someone you know, that is for sure.
This is due to the fact that there is a new analysis showing that most American families are experiencing a diminished standard of living due to these high inflation problems.
The Bureau of Labor Statistics announced last week that consumer price inflation has reached a mark of 6.8%, which is the highest rate since June of 1982 when Reagan was still trying to clean up Carter’s mess! Moreover, we are currently in the sixth straight month where inflation has been above 5%.
It was last Wednesday that the Penn Wharton Budget Model illustrated that these inflation trends were causing the typical American family to spend $3,500 just to maintain the same standard of living that they had in recent prior years.
This is a group that is well-respected by BOTH parties, and they said that this inflation problem seems to be hitting less advantaged families the hardest:
Since higher-income groups had a bigger increase in expenditures in all categories, they also saw a bigger increase in total expenditure. For example, the bottom 20 percent saw their total expenditure go up by $2,064 (under the fixed 2019 bundle) while the top 5 percent saw an increase of $8,326 (under the fixed 2019 bundle). Assuming the fixed 2020 bundle, these increases change to $2,160 and $7,636 respectively.
However, because of variation in the composition of consumption bundles, we find that higher-income households had smaller percentage increases in their total expenditure. Higher-income households spent relatively more on services, which experienced the smallest price increases. On the other hand, lower-income households spent relatively more on energy whose prices had large increases.
Under the fixed 2019 bundle assumption, the bottom 90 percent saw their consumption expenditure go up by between 6.7 percent to 6.9 percent in 2021. The top 5 percent, on the other hand, saw an increase of 6 percent. Under the fixed 2020 bundle assumption, the bottom 90 percent saw increases of 6.7 percent to 6.9 percent while the top 5 percent saw a 6.1 percent increase. Looking at the 60 to 80 percent quintile, those households saw an increased consumption expenditure of $4,441 (for the 2019 bundle) or $4,351 (for the 2020 bundle), representing an increase of 6.8 percent.
Of course, the good news is that wages are now rising after the COVID-19 scare and the lockdown induced this recession in the first place. Price levels are now rising faster, and last week, the Bureau of Labor Statistics noted that the “real average hourly earnings”, a metric that measures wages against purchasing power, actually FELL by 0.4% between October and November. And yes, nominal average hourly earnings rose by 0.3%, but this good news was overshadowed by the 0.8% increase in consumer prices.
Meanwhile, the Federal Reserve Bank of New York’s Survey of Consumer Expectations revealed that most Americans are still bracing for inflation even though most of us think that the worst part of the pandemic is now behind us:
Median one-year-ahead inflation expectations increased to 6.0% from 5.7% in October. Median three-year ahead inflation expectations decreased to 4.0% from 4.2% in both September and October. This is the first decline in the three-year measure since June 2021, and only the second decline since October 2020…
Median inflation uncertainty — or the uncertainty expressed regarding future inflation outcomes — increased at both the short- and medium-term horizons, with both reaching new series highs.
This poll also aligned fairly closely with the Penn Wharton findings, simply due to the fact that they too found that Americans – particularly those with lower incomes – expect to earn less while spending more.