Age Of Hopium: Inflation Raising Prices, Not Wages

by William Teach | April 5, 2011 7:46 am

So, Monday, everybody but Obama announced his 2012 re-election campaign (which had been actually going on since January 21st, 2009), with the theme of “I don’t agree with Obama on everything, but, I respect him and trust him.” Tells us how that works out as the US Misery Index[1] continues to rise, and consumer prices outpace wages[2]

Inflation is back, with higher prices for food and fuel hammering American consumers, and this time it really hurts.

It’s not just that prices are rising — it’s that wages aren’t.

Previous bouts of inflation have usually meant a wage-price spiral, as pay and prices chase each other ever upward. But now paychecks are falling further and further behind. In the past three months, consumer prices have been rising at a 5.7 percent annual rate while average weekly wages have barely budged, increasing at an annual rate of only 1.3 percent.

And the particular prices that are rising are for products that people encounter most frequently in their daily lives and have the least flexibility to avoid. For the most part, it’s not computers and cars that are getting more expensive, it’s gasoline, which is up 19 percent in the past year, ground beef, up 10 percent, and butter, up 23 percent.

Interestingly, the Washington Post neither blames Obama and his policies, nor even mentions him. In the era of George W. Bush, the story would have been all about him.

Few would argue that the U.S. economy, with its 8.9 percent unemployment rate, is overheating at the moment. Rather, the global economy — in particular developing nations such as China and India — is growing so rapidly that it’s straining the available supplies of all types of raw materials.

So……other nations are doing well, while the US staggers on like a Hollywood starlet on Prozac. And good news!

But the current price spike is in some ways more pernicious than the last great U.S. inflation — the steep increases of the 1970s — and harder for policymakers to address. Today, raising interest rates might make a weak economy even weaker, stifling what meager growth there has been in wages. Moreover, higher interest would make the nation’s massive budget deficits even more expensive to finance, taking an additional toll on the economy.

And which party put us on this road to fiscal ruin by spending like a drunken sailor….really, is that a fair comparison? At least the sailor is spending his/her own money till they run out. Obama and the Democrats are spending everyone else’s money, then whipping out everyone else’s credit cards and charging up a fortune.

Crossed at Pirate’s Cove[3]. Follow me on Twitter @WilliamTeach[4].

  1. US Misery Index:
  2. consumer prices outpace wages:
  3. Pirate’s Cove:
  4. @WilliamTeach:

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