Inflation got even worse last month. Prices have now risen 8.5% over the last year, which is the highest rate of inflation in over four decades. This is according to government data released this morning.
This is really hurting lower income Americans, who may have fewer means by which to absorb these price increases. It’s a regressive tax, of sorts.
It is a mistake to believe that wage growth has kept pace with inflation. It has not. Most American families must deal with this inflation by either cutting spending, saving less, and/or going into debt. Whether we’re conscious of those choices or not, those are the only three options when inflation outpaces wage growth.
Different experts have different opinions on when inflation might taper off. Some believe perhaps this summer, while others estimate longer.
And there’s another looming problem…
Abnormal inflation – like this – can be an indicator that our economy is heading towards a recession. In fact, analysists at Bank of America, Deutsche Bank, and others have already started raising the warning flags on a possible recession.
I don’t mean to sound like a broken record on this, but it’s going to take a lot to get inflation under control and hopefully head off a recession. This unfortunately includes the Federal Reserve carefully and gradually raising interest rates for a period of time. But I STRONGLY disagree with Democrats in Congress who want the federal government to step on the gas with more spending, more social programs, and more Green New Deal efforts.
It is catastrophically bad policy for a government that’s already $30 trillion in debt to borrow more and dump that money into an economy that’s experiencing this type of inflation. If there were ever a time for fiscal sanity in Washington, it’s right now.