Have you noticed that it feels like basic goods like food and gasoline cost more nowadays?
Well, that’s because they do.
Inflation for consumer goods is on the rise and likely will continue to rise as the economy reopens and consumers spend more of their pent-up savings and stimulus checks from the pandemic.
According to CNBC, “Gasoline prices were the biggest contributor to the monthly gain, surging 9.1% in March and responsible for about half the overall CPI increase. Gasoline is up 22.5% from a year ago, part of a 13.2% increase in energy prices.
Food nudged higher as well, up 0.1% for the month and 3.5% for the year. The food-at-home category increased 3.3%. All six of the government’s measures of grocery store indexes rose, with the biggest gain of 5.4% in the category of meats, poultry, fish, and eggs.
Food away from home increased 3.7%, while “limited services meals,” which include pickup, take-out and delivery restaurants, jumped 6.5% for the year, the largest annual increase in the survey’s history dating to 1997.”
These current price increases can be explained by supply chain issues and an increase in demand now that the pandemic is coming to an end.
However, energy prices have skyrocketed since Joe Biden became president and killed the Keystone XL oil pipeline and restricted oil drilling, but that is a discussion for another time.
The real danger long term is the inordinate amount of government spending.
With the national debt approaching $30 trillion, government borrowing will continue to rise, and when the day comes that interest rates rise—and that day will come— the government will pay higher interest rates to service that debt which will further extend government finances and this inflation will filter into the consumer economy and cause a reduction in the purchasing power of consumers— which means you and me.
The Fed is “monetizing the debt” by buying Treasury Bonds. Try and wrap your mind around that for a moment.
By buying government debt from private investors, the Fed makes the remaining bonds more valuable. These higher-value Treasuries don’t have to pay as much in interest to get buyers. The lower yield drives down interest rates on the US debt. Lower interest rates mean the government doesn’t have to spend as much to pay off its loans. That’s money it can use for other programs.
The great monetary economist Milton Friedman once described inflation this way: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
Another famous economist, Ludwig von Mises once said that “Government is the only agency that can take a perfectly useful commodity like paper, smear it with some ink, and render it absolutely useless.”
That is the ultimate concern…inflation is a wrecker of nations.
In ancient Rome, a massive welfare state was instituted. To pay for those welfare programs, Roman emperors raised taxes and increased the money supply by debasing the silver content in their coins. Hyperinflation followed, leaving economic devastation in its wake.
In Germany during the 1920s, taxes were high and the German government printed large sums of money to pay off the budget deficits they had accrued during World War I. Just like in Rome, hyperinflation followed, as well as food shortages and massive unemployment. The hopelessness and pain inflicted on the German people helped lay the groundwork for the rise of Hitler and the Nazis.
If history has taught us anything, it is that inflation has consequences.
And we only have a short time left to avoid those consequences here in the US.