Truthout - December 26, 2021
For weeks, a high-pitched panic about inflation has infused the mainstream media, most absurdly in CNN’s clip of a family struggling to keep up with the price of buying 12 gallons of milk per week (yes, 12).
Up until recently, Federal Reserve Chair Jerome Powell pushed back against this kind of narrative, arguing that rising prices were a short-term and transitory problem due to supply chain shocks from the pandemic that will eventually return to normal. But now the Fed has shifted course and is preparing to institute policies to “cool off the economy” — a euphemism for shrinking the money supply in order to drive down business investment and thus scale back job growth.
The definition of inflation is simple enough: an increase in the prices of goods and services. If prices rise quickly, and outpace wage growth, this can cause problems for working families — even those who don’t drink 12 gallons of milk per week. But the media narrative about rising inflation has conveniently left out several important points.
First, the prices of some of our biggest expenses — health care, housing, higher education to name a few — have been rising (often explosively so) for decades with little discussion or concern from the punditry. Health care costs are in fact the leading cause of bankruptcy in the country. Global food prices, too, have been rising because of the impact of climate change on crop yields. Easing these kinds of costs — through a nationalized health care system, investment in affordable housing, student debt relief and decarbonization — would go a much longer way toward improving working people’s finances than monetary policies to tighten economic growth.
Second, although it’s true that there has been a noticeable uptick in prices (measured by the annual change on the consumer price index) by 6.8 percent over the last year, this is still not very high by historical standards. The last time the United States experienced a serious inflationary crisis in the 1970s, the rate of inflation regularly hit between 11-13 percent. It’s also the case that measures of current price increases are skewed by a few sectors of the economy, most notably the energy sector.
A more useful measure to look at is a comparison of the rise of prices to the state of wages. If prices are going up faster than wages, then our relative purchasing power declines. But if wages keep pace with inflation, or even outpace inflation, then our purchasing power stays the same, or is strengthened. The reverse is also true. Thus, even though inflation rates have remained relatively low for much of the last few decades, wages have grown even less, meaning that purchasing power for working people declined despite low inflation rates. ...
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