Although the annual inflation rate dipped below 8% in October, working families have still lost thousands of dollars in income under the current administration, The Heritage Foundation says in a new report.
Last month, the consumer price index (CPI) rose 7.7% from a year ago and 0.4% month over month. The core inflation rate, which excludes the volatile food and energy sectors, rose 6.3% over the past year and 0.3% from September to October.
Real average hourly wages (adjusted for inflation) have fallen for 19 consecutive months. According to the Bureau of Labor Statistics (BLS), real average hourly wages fell at an annualized rate of 2.8%. When average hourly earnings are combined with a 0.9% drop in the average workweek, real average weekly earnings fell 3.7%.
In total, the average family lost $6,100 in real annual income, says EJ Antoni, a regional economics researcher at the Heritage Foundation’s Data Analysis Center. Also, the higher interest rates cost the typical family about $1,300 a year.
“It effectively cost families $7,400 in income under Biden,” he said.
According to Joel Griffith, a researcher at the Roe Institute of the Heritage Foundation, the latest CPI title does not “fully reflect the pain experienced by families”.
“Inflation is a direct result of politicians recklessly abandoning common sense and stewardship over the past two years. In 2020, Congress passed trillions of dollars in bipartisan ‘Covid-19 relief’ “The impact of this source of money has been delayed, but as President Biden triples this recklessness, Americans are feeling the impact keenly,” he said. “The solution to chaos is respite. in the face of government spending increases, ticket printing, tax hikes, extravagant regulation and the war on energy.”
Inflation is still ravaging households
Indeed, despite a lower-than-expected inflation rate, many consumer staples are still significantly higher than a year ago, and many continue to climb monthly.
Grocery prices rose 12.4%, while out-of-home food rose nearly 9%. Additionally, items found in the typical kitchen increased at a substantial rate from a year ago, including eggs (43%), coffee (14.8%), rice (14.8%) , bread (14.8 percent), milk (14.5 percent), and fruits and vegetables (7.4 percent). In addition, baby food is still 10.9% more expensive than in October 2021.
Energy also increases from month to month. In October, fuel oil jumped 19.8%, while gasoline jumped 4%. According to the American Automobile Association (AAA), the national average for a gallon of gasoline and diesel is $3.80 and $5.36, respectively.
A September Gallup poll found that a majority of Americans (56%) say price inflation has caused financial hardship for their household, up from 49% in January.
Also, some places are seeing price inflation rise more than others. New annualized data from personal finance publication WalletHub revealed that Phoenix (12.1%), Atlanta (10.7%), Miami (10.1%), Seattle (8.9%) and Detroit (8 .5%) were among the cities with higher inflation.
These conditions have given rise to several trends.
The first is that more and more Americans are living paycheck to paycheck, as a recent LendingClub survey found that three out of five consumers live this way and almost a fifth struggle to cover their bills.
The second development is that more and more people are tapping into debt securities to keep their heads above water. In September, consumers borrowed $25 billion, with buyers now holding record levels of debt.
Will these developments trigger a recession in 2023? Everything will depend on inflation and interest rates, explains Michael Connolly, assistant professor at Colgate University.
“Whether the U.S. economy experiences a relatively deep recession in 2023 will crucially depend on how resilient the labor market is to rising interest rates,” he said in the WalletHub report. “Additionally, if inflation starts to decline faster than expected, we expect the Fed to slow interest rate hikes. Both of these factors are key to the outlook in 2023.”
The job market is another factor heading into the new year. Economists and market pundits wonder if the employment field can survive higher rates. If so, that would give the Federal Reserve room to continue tightening. If not, it could prompt the central bank to reconsider rate hikes.
“There is a growing divergence between the establishment survey and the household survey in terms of the trend in total employment, with the household survey moving mostly sideways over the last seven months,” said said Nick Reece, portfolio manager at Merk Investments. “The household survey shows only 150,000 cumulative job gains since March, while the establishment survey shows 2.5 million. accompanied by a decline in the labor force participation rate, a bad combination for the outlook The lack of significant improvement in labor market participation continues to be a concern.
Giuseppe Sette, chairman of investment firm Toggle AI, thinks the institution can “still rely on strong employment numbers to keep rising until inflation returns safely to 2%”.
Although the US central bank is unlikely to cut interest rates anytime soon, it is expected to slow the pace of rate hikes. According to the CME FedWatch Tool, more than 85% of investors expect a rate hike of 50 basis points at the December meeting of the Federal Open Market Committee, which is the decision-making arm of the Fed.