Inflation shows no signs of easing, in spite of Joe Biden’s delusional pronouncements. Gas prices, rising rents, and swelling grocery bills made life more expensive for Americans. In fact, the inflation rate for the year is at 9.1 percent — the highest since 1981.
A ray of sunshine came from gas prices moderating slightly. After peaking above $5 a gallon last month, the price at the pump has dropped to an average of $4.65.
But there’s no guarantee that prices won’t start rising again.
The report contained unwelcome news beyond the headline number. A core inflation index that strips out food and fuel prices — giving a sense of underlying inflation trends — remains high and came in faster than economists expected The core index climbed 5.9 percent the year through June, barely a slowdown from 6 percent in the previous report. The core measure actually climbed 0.7 percent from May to June, more than the previous monthly increase and bad news for central bankers.
Presently, the high prices at the grocery store and the gas pump haven’t translated into workers asking for higher wages. But there have already been several strikes, with a big one — a strike of railroad workers — becoming more likely every day.
Once workers begin to ask for raises, inflation will become part of the economy that everyone — producers, workers, and consumers — factor into their buying and selling considerations. This psychological threat is more potent than anything Joe Biden and the Democrats can do.
Given the threat, the central bank has been escalating its assault on inflation. The Fed first lifted interest rates from near zero in March, by a quarter point, to try to make money expensive to borrow and slow consumer demand. In May, it raised rates half a point, and last month, it increased them by 0.75 percentage points.
Many central bankers have been clear that they want to make another 0.75-point increase in July, and that they hope to raise rates into the neighborhood of 3.5 percent by the end of the year. They could achieve that by raising rates half a point in September and a quarter point in both November and December.
When loans are more expensive companies start belt-tightening in earnest. That means cutting labor costs since it’s one of the few things a company can control.
Economists at Bank of America revised their recession forecast and are now anticipating a “mild recession” in 2022, citing high inflation and dwindling consumer spending. We’ll see how “mild” the Biden recession will be.