Inflation is a multifaceted economic issue that has profound impacts on the everyday lives of citizens, especially when it comes to essential commodities such as food and fuel. The Consumer Price Index (CPI), which measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, is the main indicator used to gauge inflation. However, the official CPI report does not fully account for the real-world impact of inflation because it can underreport or smooth over spikes in essential categories like food and gas, which are not fully taken into account
Real Inflation Rate Including Food and Gas
The official CPI uses various methods like substitution, weighting, and seasonal adjustment, which can sometimes obscure the actual rise in costs that consumers face in crucial areas. For instance, if the price of beef spikes, the CPI model might assume consumers switch to cheaper chicken, thus mitigating the perceived impact on the consumer's budget. However, in reality, not all consumers will make this switch, and even if they do, they are still experiencing a reduction in their quality of life or consumption satisfaction.
To get a clearer picture of inflation, we should consider a hypothetical scenario where food and gas are weighted more heavily or reported in a more straightforward manner in the CPI calculation, which is much more important to families than other commodities.
Typically, food and gasoline prices are more volatile and can be influenced by a variety of factors including geopolitical tensions, crop failures, and changes in global oil markets. In recent times, we've seen significant fluctuations in these sectors, yet the official inflation numbers often report a more MUTED impact.
Suppose for a moment that the actual increase in food prices is around 10% annually and gasoline prices have surged by approximately 15% compared to the previous year. These numbers are not reflected in the standard CPI reports. If included accurately, the overall inflation rate would jump significantly from the reported figures, perhaps suggesting a real inflation rate a number of percentage points higher than the official rate. This could dramatically change the public's perception of economic stability and the effectiveness of monetary policy, which is why the Biden Administration refuses to include those items despite pressure to add them into the CPI.
Comparison with Wage Increases
When the real rate of inflation is juxtaposed against wage increases, the economic strain on the average family becomes evident. Over the past year, let's assume that wage increases have averaged around 3-4%, a figure quite common in many developed economies. This increment is drastically outpaced by the inflation in food and gas. Consequently, even if wages are rising nominally, in real terms, families are experiencing a decrease in purchasing power.
Estimating Annual Costs for the Average Family
To estimate the impact on the average family, consider a family with an annual income of $60,000. If the real inflation rate considering significant food and gas increases is around 8-10% (as opposed to an officially reported 3.8%), this discrepancy can lead to substantial financial strain. The family would need an additional $2,500 just to maintain the same standard of living if we go by the official rate, but with the adjusted inflation rate, they would need about $6,000 or more per year.
Additionally, the undisclosed true inflation rate has had a significant ripple effect on household debt, particularly credit card debt, which has surged to record highs never before seen in America. As the cost of living increases outpace wage growth, more families are turning to credit to bridge the gap between their income and their expenses. This reliance on credit not only highlights the immediate financial pressures households are facing but also sets the stage for potential long-term financial instability. With higher portions of monthly budgets being allocated to servicing debt, families have less available for savings or investments, potentially leading to a precarious financial future. The increase in credit card debt is a testament to the strain that the underreported inflation rates are placing on average Americans, forcing many to live beyond their means just to maintain a basic standard of living.
Home Ownership Is Curtailed by Real Inflation
Furthermore, the sustained high, REAL inflation rate is exerting upward pressure on mortgage rates, which are now holding at levels not seen in years. This increase in mortgage rates directly impacts the affordability of home ownership, making it increasingly difficult for the average family to enter the housing market. As borrowing costs rise, monthly mortgage payments become more expensive, effectively pricing out potential new homeowners and complicating the financial plans of those looking to buy. This shift not only limits the accessibility of home ownership but also affects the overall stability of the real estate market, as fewer families can afford to buy, leading to a slowdown in home sales and potentially affecting home values. The elevated mortgage rates serve as yet another indicator of how high inflation is reshaping the economic landscape and the everyday financial decisions of average families.
CONCLUSION
The implications of such economic conditions are profound. When families struggle to keep up with basic expenses, discretionary spending plummets, which in turn can slow down economic growth. Moreover, if the public perceives that the true inflation rate is being obscured, it can lead to a loss of confidence in economic policy and institutions, exacerbating economic uncertainty.
By ensuring that CPI reports more accurately reflect the real cost increases in essential items such as food and gas, policymakers would be able to make more informed decisions, and the public would have a clearer understanding of the economic challenges they face.
Be VERY careful with your vote this coming November. The only way out of this disaster is with major economic and other changes at the Federal Level. Who you vote for...in the Presidential, Senate and House races will determine our near future and that of our kids and grandchildren! Much is at stake!
Great article. Inflation is a direct attack on the lower income and middle class voters, most of whom are too ignorant or brainwashed to realize they are voting this.
Well said. From my muddy perspective, I no longer desire to do business with anyone who openly worships their political party, which is nothing more than an idol or cult at this point. Anyone who will arrest their political opponents or kill citizens during a capitol assembly is NOT a person who should be treated as if they’re leaders. Forget these losers! While conflict sucks, especially internally, I cannot fathom why strong people of character permit the weak overthrow of our nation! WAKE UP sheep. Sheep dawgs are tired of The SELLOUT