By Brad Polumbo
Defenders of big-government pandemic interventions have insisted that any price inflation these schemes have caused is just temporary. But even more data just came in showing price inflation hitting new highs—further spotlighting the destructive consequences of these reckless policies.
The federal government just released the latest Consumer Price Index (CPI) for June 2021, an imperfect but useful metric that tracks general price inflation in a bundle of typical consumer goods. Basically, it attempts to illustrate how much prices are rising for the goods average Americans buy regularly. The June edition shows prices once again sharply on the rise, with a 0.9 percent increase from May to June. From June 2020 to June 2021, the data show that consumer prices rose a whopping 5.4 percent.
Contrary to what the experts have been telling us, US consumer price inflation soared to a 13 yr high of 5.4%/yr. What did they miss? The explosion in the money supply. As Milton Friedman taught us: “Inflation is always & everywhere a monetary phenomenon…”https://t.co/I0vGYjAcAQ
— Steve Hanke (@steve_hanke) July 13, 2021
Some specific goods saw particularly drastic price hikes year-over-year. Chiefly, used cars and trucks rose 45.2 percent in price, while energy prices spiked 24.5 percent.
This all represents the biggest year-over-year price increase measured since 2008. In other words, price inflation just hit a 13-year high. But why? And, more importantly, why should you care?
Inflation seems to be taking off. CPI growth is way above trend. It doesn't seem "transitory" any more, does it? pic.twitter.com/te3LEapdQs
— Kurt Couchman (@KurtCouchman) July 13, 2021
While price inflation has many causes, we can trace much of the current surge back to the policy of the Federal Reserve, the central bank controlling the supply of US dollars. The Fed essentially created trillions of new dollars to pump into the economy in the name of “stimulus.”
“The quantity of money has increased more than 32.9% since January 2020,” FEE economist Peter Jacobsen explained in May. “That means nearly one-quarter of the money in circulation has been created since then. If more dollars chase the exact same goods, prices will rise.”
This policy-fueled price inflation is more than an abstract economic phenomenon. It means that average Americans, barring those who have seen big wage increases over the last year, are significantly poorer than they were before.
The typical person’s standard of living declines as a result of price inflation, because what really matters is not what number appears on your paycheck but what that paycheck can buy you. Working-class Americans suffer tremendously when their energy bill increases by nearly 25 percent in just one year, for example.
See the problem yet? pic.twitter.com/2ChsuO9Zzn
— Brad Polumbo 🇺🇸⚽️ 🏳️🌈 (@brad_polumbo) July 13, 2021
Plus, all those who have saved money in their bank accounts—whether for college, retirement, a rainy day fund, etc.—have had their real wealth eroded by this inflation.
Of course, the current rate of price inflation, while high, is still significantly short of the kind of hyperinflation that can ruin whole economies. And no one can predict with certainty what inflation will be in the future.
But the current levels of price inflation plaguing our economy are seriously harmful. Don’t forget the many ways price inflation hurts real people, or that we can ultimately trace much of it back to the decisions made by government policymakers.
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Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.
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