The U.S. economy has been on a rollercoaster ride since the COVID-19 pandemic hit in 2020. Americans have been grappling with the effects of inflation, which reached a four-decade high of 9.1% in June 2022.
This @WSJ chart captures well why the general public has yet to appreciate the fall in the US inflation rate from over 9% two years ago to just under 3%.#economy #inflation #econtwitter pic.twitter.com/jucDpufqMF
— Mohamed A. El-Erian (@elerianm) August 16, 2024
While inflation has eased to an annual pace of 2.9% last month, people are still feeling the pinch at the grocery store and in their daily lives.
This chart from Strategas shows why many Americans are unsatisfied w/their economy. Inflation for the avg American – Common Man CPI consists of Food, Energy, Shelter, Clothing, Utilities & Insurance – has risen faster than wages, resulting in a perceived loss of purchasing power. pic.twitter.com/b9s3tESpIW
— Holger Zschaepitz (@Schuldensuehner) August 17, 2024
A recent analysis shows that the economy remains the top concern for Americans when deciding who to vote for in the upcoming presidential election. From January 2020 to June 2024, prices increased by 21.8%. Some goods and services saw even steeper rises, with the cost of margarine surging by 56.8% and motor vehicle repair and insurance, eggs, sugar, and beef and veal increasing by more than 39%.
Monetary policy is NOT about INTEREST RATES, it's about changes in the MONEY SUPPLY.
To predict INFLATION most accurately, focus on changes in the MONEY SUPPLY from 12-24 months prior.
More in my latest with @davidlin_TV: pic.twitter.com/ePmwXQE8k3
— Steve Hanke (@steve_hanke) August 18, 2024
On the other hand, the cost of smartphones has fallen by more than 53%, and items such as televisions, men’s suits, and health insurance are now cheaper than before the pandemic.
Inflation impact on everyday expenses
The Federal Reserve has been working to combat inflation by raising interest rates to their highest in over two decades.
The CAUSE and EFFECT of ALL INFLATIONS:
1. INCREASE in the money supply
2. Inflation follows with a ~12-24 months lag
3. Higher bond YIELDS followMONEY = THE ECONOMY’S FUEL pic.twitter.com/dc2NGe1Sxe
— Steve Hanke (@steve_hanke) August 18, 2024
High interest rates help slow inflation by raising the cost of borrowing money, which can then slow economic activity and reduce consumer spending. The Fed’s goal is to achieve a 2% inflation rate, which is seen as a way to ensure more stability in prices. While a 0% inflation rate may sound ideal, economic growth requires some form of inflation, and setting the target at 0% raises the risk of deflation, which can be economically harmful.
As the economy continues to evolve, discussions are now shifting to the potential for a “soft landing,” where the economy slows just enough to curb inflation without falling into deflation or triggering a recession. Economists and policymakers are closely monitoring these trends to implement measures that might help achieve this balance. Understanding the terms and their implications can help businesses and consumers make informed financial decisions as they navigate through these changes.
While the road ahead may be uncertain, staying informed and adaptable is key to weathering the economic storms.
- NPR.”Everything you always wanted to know about inflation (but were afraid to ask)”.
- KOMONews.”Fact Check Team: How has inflation impacted American wallets since 2020?”.
- DCourier.”Talking Money: Disinflation vs. deflation and talk of an economic ‘soft landing'”.