Inflation persistent

With monetary and economic policy deadlocked, the White House is now officially throwing in the towel and admitting that the fight against inflation has been lost – almost ruling out monetary easing as evidenced by the fact that the Federal Reserve Reserve despite strong political pressures due to the election cycle kept interest rates unchanged. According to the latest inflation data from the Bureau of Labor Statistics, the rise in the Consumer Price Index in February accelerated for the second month in a row. According to the Federal Bureau of the Budget (BLS), Consumer Price Index (CPI) inflation rose 3.2 percent on a year-over-year basis in February, not seasonally adjusted. This is the 36th consecutive month that inflation has been well above the Fed’s 2% inflation target. Month-on-month inflation also accelerated, with the CPI rising 0.4% from January to February, after seasonal adjustment. Month-on-month growth was 0.3% from December to January. The ongoing price increases largely reflect rising prices for food, services, electricity and housing. For example, prices for “eating out” increased by 4.5% in February compared to the previous year. Gasoline prices fell 3.9% over the same period, but electricity rose 3.6%. Prices for “services excluding energy costs” rose 5.2% year-on-year, while rent spending rose 5.7% over the period. In addition to fluctuating energy and food prices, we find that price inflation remains stubbornly high. So-called core CPI growth remains close to 4%—double the “2% target”—keeping inflation rising near thirty-year highs. In other words, core CPI is a long way from returning to normalcy, as the dominant narrative professes. In addition, the month-on-month increase came in at 0.4%, which is the largest month-on-month increase since April 2023. This image has an empty alt attribute; its file name is image-121-1024x549.png  

Biden blames corporate greed

In recent months, supporters of the current status quo have repeatedly claimed that inflation is “falling” or otherwise rapidly decelerating.

Nobel laureate Paul Krugman has been one of the White House’s most ardent supporters and followers of a failed Keynesianism that claims that the problem of price inflation has been “solved” and that significant price deflation is taking place.

February’s data, however, proved an undoing of that narrative, as it became increasingly clear that price inflation was not actually going away. In contrast, the month-on-month numbers suggest that price inflation is rising.

Moreover, cumulative inflation over the past four years has been massive. The CPI increased by 19.9% from February 2020 to February 2024.

In other words, assuming the CPI is calculated without alchemy—and captures the true extent of price increases—the dollar has lost a fifth of its value in just four years.

This has been disastrous for many savers and those on fixed incomes.

The response of the Biden administration and economic staff to this undeniable fact was predictable, as the President blamed “corporate greed”, when the real causes are excessive public spending that inflates the federal budget deficit and central bank policies that they artificially increased the money supply with cheap money.

Biden has repeatedly accused the private sector of unjustified … “price gouging” and reducing the size of a product while keeping its price the same.

The rapidly increasing money supply

We can only get a better picture of the real causes of price inflation if we look somewhere other than the private sector.

More specifically, the acceleration in price inflation we are now forced to endure is the result of the unprecedented increases in the money supply that have occurred since government-enforced lockdowns began in the spring of 2020.

Faced with a forced “shut down” economy, the federal government called on the central bank, the Federal Reserve, to print massive new amounts of dollars to distribute to the millions of Americans whose jobs and incomes were destroyed by government lockdowns.

These were essentially bribes designed to pay Americans to sit at home and spend their printed money. This created an immediate inflationary boom by mid-2020. It’s easy to see why.

The money supply increased by 40% between February 2020 and February 2021, by $5.7 trillion. The money supply has contracted somewhat since the beginning of 2022, but in net, the money supply has increased by $4.7 trillion since February 2020. That’s a 32% increase.

With a current total money supply of about $19 trillion, this also means that 25% of all dollars that have ever existed were created after 2020.

We realize that the source of evil in inflation is not corporate greed but government expansionary fiscal policy and the Federal Reserve.

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Since the pandemic

In other words, the monetary inflation fueled by the economic measures for Covid created today’s ongoing price-inflation spiral.

Regime economists have repeatedly tried to obfuscate the above reality with..claims of “falling inflation”, but consumers can see that groceries, residential fuel and services are all significantly more expensive than before few years.

Some economists might argue that this is not a big deal because there has also been price inflation in wages.

Unfortunately for regular people, real wages fell through most of 2022 and 2023 and continue to show only very anemic growth. The vicious circle of a wrong monetary policy will culminate in a major financial crisis.

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Trust Economics is a specialized independent economic research, analysis and consultancy business. Our team provides ingenious analysis in the macro & micro economic field, in the field of financial market, regional and sectoral analysis equally, forecasts, consultancy, specialized studies-research/projects from its headquarters in Athens, Greece.

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