President Biden claimed on Wednesday, August 10 that, “today we received news that our economy had zero percent inflation in the month of July – zero percent,” despite the fact that the Consumer Price Index (CPI), the measure of inflation, was up 8.5 percent versus July 2021. While the CPI was down from its 9.1 percent June number, it is still extremely high, and certainly not zero.
The decrease in acceleration of the inflation rate was driven primarily by a decrease in gas prices. Per Bloomberg, “while a drop in gasoline prices is good news for Americans, their cost of living is still painfully high, forcing many to load up on credit cards and drain savings.” Per the US Bureau of Labor Statistics, the price of gasoline dropped 7.7 percent in July, but is still up 44 percent for the twelve months ending July 2022, with all energy commodities up 44.9 percent.
On the day the CPI numbers were released (August 10), the national average for a gallon of gas was $4.03, down from record highs of $5.02 per gallon, but significantly higher than the August 2019 average of $2.70 per gallon. That is nearly $80 more a month to fill-up a 15-gallon tank on a weekly basis, nearly $1,000 more per year.
The Biden administration has taken credit for the decrease in the price of gas – even though the stated reason for the original increase in the price of gas was the “Putin Price Hike.” The decrease in the price of gas is actually due to a reduction in demand, as Americans put off summer driving vacations, something many can no longer afford. In addition, the futures markets are worried about the US economy and a further decline in demand as the recession continues to take hold of the economy. The strong dollar has also helped to drive down demand as well.
So, if the price of gas is down, what is driving 8.5 percent inflation? The two primary drivers are the cost of food and the cost of housing.
The “food at home category, which tracks the cost of groceries, surged 13.1% over the last year, the most significant increase since March 1979.” This food inflation is hitting basic staples, not just champagne and caviar. Staples such as eggs are up 38 percent, chicken is up 16.6 percent, milk 15.6 percent, potatoes 13.3 percent, rice 12.7 percent, and fresh fruits and vegetables 8.2 percent.
The cost of shelter also continues to rise. “Shelter costs – which account for roughly one-third of the CPI…have climbed 5.7%” over the past year, the fastest since February 1991.
The impact on working-class Americans has been devastating, and the headlines are misleading. According to the U.S. Bureau of Labor Statistics, “nonfarm payroll employment rose by 528,000 in July and the unemployment rate edged down to 3.5%.” The corporate media tells us that this is a huge success for President Biden. However, if you dig into the numbers, it is not all good news. There are two disturbing statistics contained in the BLS report:
- “The labor force participation rate, at 62.1%, and the employment-population ratio, at 60.8%… remain below their February 2020 values.”
- “The number of persons employed part time for economic reasons increased by 303,000 to 3.9 million in July. The rise reflected the increase in the number of persons whose hours were cut due to slack work or business conditions.”
This means that fewer people are participating in the workforce, which drives the unemployment rate down. And 3.9 million Americans are working at least two jobs just to make ends meet. This is unacceptable in the United States.
The impact of the poorly performing economy is starting to show in the data.
“Midyear 2022 U.S. foreclosure filings hit 164,581,” an increase of 153 percent from the same time period a year ago. In addition, car repossessions are exploding. According to Barron’s, vehicle repossessions have doubled among “prime” borrows, which includes “borrowers with good credit scores.” According to the same article, “most of the loans on recently repossessed cars originated in 2020 and 2021,” showing that much of the COVID stimulus money was spent on cars people could not afford.
Sadly, it doesn’t stop there. “An estimated 34 million US consumers, or roughly 13%, spent more than they earned in the past six months, underscoring how Americans are having difficulty managing their finances amid decades-high inflation.”
According to the same article, 55.6 percent of Americans have less than $5,000 in savings.This also helps to explain the rapid growth in US consumer borrowing.
“US consumer borrowing surged in June, reflecting a jump in credit card balances and a record increase in non-revolving lending that includes auto and school loans.” The same report showed that “revolving credit outstanding, which includes credit cards, increased $14.8 billion. Non-revolving credit increases $25.4 billion.”
To summarize, we are in a situation where Americans are working multiple jobs, spending more than they earn, losing their homes and cars, eroding their savings, and borrowing more than ever. All of this at a time when, according to President Biden, “we have zero inflation.”
It is likely to get even worse. The Federal Reserve is expected to “stick with hawkish rate hikes until data show further slowing in inflation,” with an increase of 50 or 75 basis points likely in September. This will make the exploding credit card debt more expensive to pay as interest rates rise and adjustable-rate mortgages more expensive, which will cause more foreclosures.
Working Americans are suffering tremendously at this time of “zero inflation.”