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Inflation Sees Biggest Jump Since 2008

The Consumer Price Index, which is the major inflation metric, showed a surge of 5.4 percent over the last year through June

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Inflation

Data released Tuesday by the  Department of Labor shows inflation has surged in the biggest jump since 2008. The Consumer Price Index, which is the major inflation metric, showed a surge of 5.4 percent over the last year through June.

National Review reports the jump “exceeded many financial firms’ and economists’ predictions. For example, economists at Goldman Sachs expected only a 5.1 percent increase from the prior year, up from 5 percent the prior month.”

The Labor Department says the increase was largely driven by price hikes in the used car and truck market, which accounted for over a third of the increase. Lawmakers and the Federal Reserve suggest inflation will moderate as the pandemic dwindles.

“A large component in the inflation equation that the Fed can’t control as easily as inflation expectations, or what people think the direction of prices will be” reports National Review which also states, “the cues from some Fed officials have been mixed and somewhat ambiguous.”

“It’s still too early to tell how things are going to evolve,” said John C. Williams, the president of the Federal Reserve Bank of New York. “We’ll just have to watch it carefully,” he said Monday to reporters.

National Review reports:

When asked about the future of the Fed’s gargantuan asset purchase monetary policy, once referred to as “quantitative easing” after the 2008 financial crisis, William said: “The last few months, and I guess the last three months, we’ve seen some pretty strong movements, and kind of crosscurrents, both in the employment data and the inflation data.”

If inflation persists but wages do not move in lockstep with it, an effective tax will be imposed on the consumer, reducing the length a dollar can be stretched to pay for goods and services.

To curb inflation, the Fed has a few but limited weapons in its arsenal. One instrument at its disposal is to raise rates to prevent the economy from overheating, but that carries with it the risk of adversely affecting the stock market and other asset classes.

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1 Comment

1 Comment

  1. Pamela Tassey

    July 13, 2021 at 5:00 pm

    So…how much will my cost-of-living increase will I see on my Social security check?

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Economy

New Research Suggests U.S. Already in a Recession That’s Only Getting Worse

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Recession

A Dartmouth professor warns not only has the United States slipped into a recession that is likely as bad as the 2008 financial meltdown, but that it is getting worse. David Blanchflower of Dartmouth, along with Alex Bryson, of University College London, “says that every slump since the 1980s has been foreshadowed by 10-point drops in consumer indices from the Conference Board and the University of Michigan” reports the Daily Mail.

The two professors authored a research paper released October 7 titled, “The Economics of Walking About and Predicting US Downturns” in which they state the dire prediction. “It seems to us that there is every likelihood that the US is entered recession at the end of 2021.”

In the paper’s ‘Abstract’ it states “the economic situation in 2021 is exceptional, however, since unprecedented direct government intervention in the labor market through furlough-type arrangements has enabled employment rates to recover quickly from the huge downturn in 2020.”

“However, downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now (Autumn 2021) even though employment and wage growth figures suggest otherwise.”

In the introduction, the paper explains that “following the collective failure to predict the Great Recession of 2008 economists have redoubled their efforts to predict economic downturns.” This paper seeks “to see whether it is possible to predict turning points in the United States economy since the late 1970s using qualitative data for the United States from The Conference Board and the University of Michigan on consumer expectations.”

The research paper writes:

We identify four criteria to predict these recessions:
1.     Two out of three successive quarters of quarterly GDP growth are negative.
2.     There are two successive months of employment declines in the Current Population Survey (CPS) household-level data.
3.     The unemployment rate rises 0.3 percentage points in a single month.
4.     Either or both the two expectations measures we examine from The Conference Board and the University of Michigan fall by 10 points or more.

So, what is going on? The answer appears to lie in the exceptional nature of the COVID-induced shock to the economy. It has been both an economic shock and a health shock, and one with the potential to derail the economy again over the coming months. It seems likely that, in spite improvements in traditional labor market indicators, declining consumer expectations about the future of the economy are linked to COVID-related fears and anxieties. This is borne out by the survey by The Conference Board discussed above indicating a recent rise in the percent of workers – and especially women – worried about returning to the workplace for fear of contracting COVID- 19, a substantial increase from June 2021 when only 24% expressed this concern…

…We suspect that fears linked to COVID will continue to affect the real economy and lie behind consumer expectations about an imminent downturn in the economic situation. This is a bold call of course, and not consistent with consensus and only time will tell if we are right. However, equivalent falls in these data in 2007 were an early indicator of recession, missed at the time by policymakers and economists. There is a possibility of course, that these data are giving a false steer. However, missing the declines in these variables in 2007, as most policymakers and economists did, proved fatal. It is our hope such mistakes will not be repeated this time around. They missed it last time, hopefully, they won’t miss it this time. These qualitative data trends need to be taken seriously.

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Economy

Social Security Administration Announces 5.9% Benefits Increase for 2022 Amid Rising Inflation

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social security

On Wednesday the Social Security Administration announced some 70 million beneficiaries will be receiving a 5.9% increase in benefit checks beginning late December and January. The move is the “biggest cost-of-living adjustment (COLA) in 39 years” following “a burst in inflation as the economy struggles to shake off the drag of the coronavirus pandemic” reports the Associated Press.

Estimates released Wednesday suggest a roughly $92 per month increase for the average retired worker. “That marks an abrupt break from the long lull in inflation that saw cost-of-living adjustments averaging just 1.65% a year over the past 10 years,” writes the AP.

With the changes, an average Social Security payment could be around $1,657 per month, and a couple’s benefits could rise to $2,753 per month. The AP reports “the COLA affects household budgets for about 1 in 5 Americans. That includes Social Security recipients, disabled veterans and federal retirees, nearly 70 million people in all. For baby boomers who embarked on retirement within the past 15 years, it will be the biggest increase they’ve seen.”

However, the Washington Post reports that experts say millions of beneficiaries will see “much less” than a 6 percent increase due to Medicare Part B premiums, which are deducted from beneficiaries checks and tied to seniors’ income.

Roughly 64 million of those affected are Social Security beneficiaries, while 8 million are Supplemental Security Income beneficiaries and “some Americans receive both.” The increase is the “biggest since 1982 as the Social Security benefit increase has averaged about 1.7 percent over the last 10 years” writes National Review.

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