Home Energy services Inflation and declining income due to the pandemic

Inflation and declining income due to the pandemic

9
0

The US Bureau of Labor Statistics just released the latest inflation reading this week and the August number is 0.3%, the lowest number we’ve seen since the identical number in January. On the flip side, over the past 12 months we’ve seen inflation soar to 5.3%, the biggest increase in over a decade.

Inflation continues to be a big problem and we’ll see if it continues to decline as it did in August. There is still a lot of debate as to whether the recent rise in inflation is transient or here to stay.

Looking at some of the individual categories, Energy led the increases with a 25% increase year over year. Not surprisingly, gasoline led this category, up 42.7% year over year. Energy services rose 8.6%, offsetting the sharp increase in gasoline and reducing the overall category to the 25% previously mentioned.

Also in this category, electricity increased by 5.2% and natural gas by 21.1%. It doesn’t look like we’ll be getting relief in this area anytime soon.

Food was up 3.7%, food in the home up 3% and food outside the home up 4.7%. Commodities as a group grew 7.7% and new vehicles rose 7.6%, but continued to be hampered, in terms of supply, by a lack of computer chips to complete new ones. units. The second highest increase in CPI figures was for used vehicles which rose 31.7%, although the increase was down from previous months.

The largest monthly increases occurred in April (0.8%) and June (0.9). We will see if the coming months show the continuation of the price decline seen in August or if the higher rate of the previous months will continue.

Inflation has returned mainly due to the robust recovery in the economy and trillions of dollars in federal aid to offset the effects of the pandemic. Things to watch out for in terms of inflationary pressures include: continued strength of the economy, additional federal aid, tax increases (which will cause companies to raise prices and control wages in an attempt to partially offset the higher taxes) and the pandemic. Each of these are unknown as to their outcome, but they could have an impact on higher inflationary pressure.

On another topic, unsurprisingly, revenues fell last year due to the pandemic. It was the first decline in household income in more than a decade caused by the Great Recession of 2008-2009 and follows strong increases in household income in recent years. This comes from an annual assessment of the nation’s well-being released by the Census Bureau.

Median household income was $ 67,500 in 2020, down 2.9% from the previous year. This was clearly caused by the pandemic, which claimed millions of jobs during the lockdown and led to a decades-long high as the unemployment rate soared to 14.8%.

Census Bureau income data does not include items such as stimulus checks and other non-cash programs such as federal food programs. Interestingly, if these had been counted, the median household income would have increased by 4%.

The poverty rate also showed a negative trend. The poverty rate was measured at 11.4%, a significant gain of 1% from 2019. This 1% increase represented 3.3 million people, bringing the country’s poor population to 37.2 million.

As bad as that number is, the report estimates that stimulus checks have lifted 11.7 million people above the poverty line. By the way, the poverty line is $ 26,000 in 2020 for a household of four.

You might be wondering why I combined two seemingly unrelated topics in this article. In fact, the reason is very simple. Households at the bottom of the income scale are the hardest hit by inflation. If food and energy prices rise at high rates, they consume a proportionately higher percentage of the budgets of the lowest incomes than the highest incomes.

Plus, other metrics show rents increased 8% and nationwide home prices rose 19%. Finally, additional federal deficit spending and new taxes will disproportionately affect low wages by exacerbating inflation. Putting more money in the economy only raises prices and new corporate taxes will be inflationary by forcing companies to raise prices and control wages.

Jeff MacLellan is retired from Landmark Bank. He has spent 37 years in banking and has been following local economic indicators since arriving in Colombia in 1987.


Source link