America’s inflation crisis is even worse than you think
Unless you’ve been living under the world’s biggest rock over the past six months, you know that the United States is experiencing unprecedented inflation.
The consumer price index (CPI), the most popular index measuring inflation, shows the price of consumer products and services jumped 6.2 percent from October 2020 to October 2021 — the fastest 12-month increase in nearly 31 years.
CPI data from the Bureau of Labor Statistics reveal that virtually every aspect of the U.S. economy has been impacted by the inflation. The price of milk has increased 17 percent. Egg prices have risen 42 percent. Energy service prices have increased more than 11 percent.
But as bad as the widely reported CPI inflation figures are, a closer evaluation of key industries reveals that for millions of families, especially those seeking to purchase higher-priced items such as a car or home, inflation is having an even worse impact than the CPI’s topline figures show.
For example, Kelley Blue Book reported in October that the average price of a new car has increased by $5,000 since the end of 2020. A new motor vehicle now costs an average of $45,000 — the highest figure ever recorded.
Even car brands once considered a bargain by consumers have become far too costly for many working families. The average cost of a new Honda in September 2021 was $35,310, and the mean sales price of a car produced by Toyota was $40,778.
Perhaps worst of all is the increase in the cost of new homes. In the fourth quarter of 2019, just prior to the start of the coronavirus pandemic, the average sales price of a home sold in the United States was $384,600. In the third quarter of 2021, the average sales price of a home was $454,300 — nearly $70,000 more.
It’s difficult to understate the historic nature of these figures. The average sales price of a home in the second quarter of 2021 was 17.65 percent higher than it had been 12 months earlier, the third largest year-over-year increase recorded since 1963 and the biggest price jump since 1973, nearly 50 years ago.
Although the day-to-day cost increases of milk, gasoline, eggs, meat and other items are important and are undoubtedly putting a strain on Americans’ wallets, the most important inflationary pressures are occurring in the parts of the economy with higher-priced goods and services.
The inflation crisis is pricing millions of Americans out of the housing market and making it virtually impossible for many families to afford vital items like a car. As a result, key markets are cooling at a time when economic growth is desperately needed. Auto sales, for example, dropped by 7.3 percent from August to September.
It’s vital for consumers to remember that even if inflation soon matches historical norms, the damage that is occurring now will not be reversed without a strong deflationary period, an unlikely outcome that would invite its own set of economic problems.
The reasons for the incredibly high amounts of inflation that have occurred in recent months are not a mystery. Governments’ decision to impose widespread coronavirus lockdowns, coupled with more than a year of government handouts and disincentives to work, created vast supply-chain problems that will take months, if not years, to completely fix.
Further, the decisions made by the Federal Reserve, Congress and the Biden and Trump administrations to print and distribute trillions of dollars over the past year and a half are causing the cost of everything to rise, an outcome that was predictable and avoidable.
Had the Federal Reserve and federal government chosen to target relief to those truly in need during the height of the pandemic, rather than do the financial equivalent of helicopter-drop piles of cash throughout the entire economy, much of the present inflation crisis could have been prevented.
Instead, the Biden administration and Democrats in Congress appear committed to doubling down on this failed approach, an argument best illustrated by Biden’s “Build Back Better” monstrosity.
If passed in its current form, the Build Back Better plan would require the government to spend $1.75 trillion on a slew of government programs and numerous unnecessary handouts, swelling the U.S. budget and requiring hundreds of billions of additional printed dollars, regardless of whether Democrats are successful in achieving their plan to impose jobs-killing tax increases on businesses.
The Biden administration and Democrat-controlled Congress are causing America to slowly but certainly commit economic suicide. The only hope the United States has to reverse course is a widespread, firm backlash against the irresponsible policies that created the present crisis in the first place. A good place to start would be a total rejection of the Build Back Better bill now under consideration in Congress.
Justin Haskins (Jhaskins@heartland.org) is the director of the Stopping Socialism Center at The Heartland Institute and the co-author, with Glenn Beck, of the forthcoming book, “The Great Reset: Joe Biden and the Rise of 21st Century Fascism.”