Financial squeeze stems from the rising cost for a number of everyday goods
The average American is shelling out an extra $311 a month because of the hottest inflation in a generation, according to a new Moody’s Analytics analysis.
“This is a little less than last month but still a noticeable burden on households,” said Ryan Sweet, a senior economist at Moody’s Analytics who conducted the analysis.
The financial squeeze stems from the rising cost of a number of everyday goods, including cars, rent, food, gasoline and health care.
INFLATION SOARS 8.3% IN APRIL, HOVERING NEAR 40-YEAR HIGH
Inflation accelerated again in April, the Labor Department reported on Wednesday, with the consumer price index rising by 8.3%. While that’s down a bit from the 41-year high notched in March, it was much higher than expected and underscores that inflationary pressures in the economy remain strong.
Sweet came up with that figure by comparing prices for goods and services in April versus how much households would have paid for those same items when inflation was 2.1%, the average in 2018 and 2019.
Rising inflation is eating away at strong wage gains that American workers have seen in recent months: Real average hourly earnings decreased 0.1% in April from the previous month, as the inflation increase eroded the 0.3% total wage gain, according to the Labor Department. On an annual basis, real earnings actually dropped 2.6% in April.
The inflation spike has created a political headache for President Biden, who has seen his approval rating plunge as consumer prices rise. It has also forced the Federal Reserve to embark on the most ambitious policy tightening mission in decades: Policymakers raised the benchmark interest rate by 50 basis points in May for the first time since 2000, and have signaled that similarly sized hikes are on the table at coming meetings as they seek to tame inflation.
“Inflation is much too high, and we understand the hardship it is causing, and we are moving expeditiously to bring it back down,” Fed Chairman Jerome Powell told reporters last week. “Assuming that economic and financial conditions evolve in line with expectations, there is a broad sense on the committee that additional 50 basis point increases should be on the table at the next couple of meetings.”
The concern now is that the Fed may inadvertently drag the economy into a recession with its aggressive rate hike course. Bank of America, Fannie Mae and Deutsche Bank are among the Wall Street firms forecasting a downturn within the next two years, which has further rattled investors and markets.
Powell conceded on Thursday that achieving the elusive “soft landing” – the sweet spot between cooling consumer demand without crushing economic growth – could prove tricky.
Sweet, the Moody’s economist, said he agreed, suggesting the possibility of a soft landing is becoming increasingly smaller.
“The Fed could be faced with a Hobson’s choice: Push the economy into a mild recession, similar to our scenario, to tame inflation or wait and possibly cause a more significant recession, since a stagflation scenario is possible next year if the Fed isn’ t aggressive enough,” he wrote.
Credit: www.foxbusiness.com /