The most widely used measures of consumer price inflation hit their highest levels in decades, with the consumer price index rising 6.8 percent only from November 2020 to November 2021. These sharp price increases seem abstract, but a new analysis of the Ivy League shows how the continued rise in prices will penalize average households.
The Wharton School of Business at the University of Pennsylvania ran the numbers to analyze what American households will need to spend in 2021 to maintain the same standard of living from 2020 or 2019. Their analysis reports that “inflation in 2021 will force the average US household to spend about $ 3,500 more in 2021 to achieve the same level of consumption of goods and services as in recent years.”
It’s true: Thanks to continued price inflation, families basically only lost $ 3,500. Wharton’s analysis also notes that low-income households will be hit even harder by these price increases than high-income families, as low-income families tend to spend relatively more of their money on particular goods that suffered the most significant price increases.
As families across the country realize, inflation is not just an abstract economic phenomenon. It hurts the finances of struggling Americans and makes it harder for families to put food on the table. But there is one more thing the public should remember: Inflation today is ultimately rooted in government policy choices.
The main cause is the Federal Reserve’s decision to engage in unprecedented digital printing to “stimulate” the economy during the COVID-19 recession. As FEE economist Peter Jacobsen said Explain, “If more dollars are chasing the exact same products, the prices will go up. “
This graph shows how drastic the silver printing frenzy has been:
The increase in prices that results from the increase in the money supply, as discussed above, is how free market economists define inflation. But the broader increase in consumer prices captured by the Consumer Price Index also includes price increases influenced by other causes.
For example, during the pandemic, different levels of government all adopted restrictions on economic activity. By reducing Americans’ ability to produce goods and provide services, the government has reduced supply. This, quite predictably, leads to higher consumer prices when the things people want become harder to find.
This is not technically “inflation”, but it influences consumer prices and still hits Americans in the portfolio. Either way, at the end of the day, most of the price increases affecting families right now are ultimately traced back to government policy choices in one form or another.
So the $ 3,500 cost imposed on average American families is not just an unlucky event. It is in fact a “stealth tax”, a way the government is using us to finance its various programs while making it appear that private companies are the cause of the problem. You don’t have to be an Ivy League economist to understand why this is such a scandal.