Tag: inflation

Inflation Reaches 4.2% as Prices Outpace Paychecks

There is a lot of political discourse about “affordability,” but the meaning of the term can be difficult to pin down.

Is it just a jargony way of talking about high nominal prices? Is it really all about housing? Could it be, as President Donald Trump has suggested, a “con job” invented by Democrats to make his administration look bad? Different people will have different answers, and I suspect we will continue to debate those questions through the midterms and into the 2028 presidential cycle.

But probably the most straightforward way to think about the “affordability” question is the relationship between two figures published monthly by the Bureau of Labor Statistics (BLS): average hourly earnings and the consumer price index. When the former is rising at a faster rate than the latter, the pay for the average worker is rising faster than prices. For that worker, life is getting more affordable.

When inflation is rising faster than wages, however, the opposite is true. And that’s what is happening now.

Wages grew by 3.4 percent over the past year, the BLS reported last week. On Wednesday morning, the BLS reported that inflation has climbed by 4.2 percent over the past 12 months, thanks in large part to a sharp increase in prices (fuel prices, in particular) since the start of the Iran war in March.

With prices rising faster than wages, the BLS also reported on Wednesday that “real average hourly earnings”—that is, wage growth once you account for inflation—were down by 0.3 percent in May.

Averages only get you so far, of course. Some Americans are feeling the sting of inflation more than others, depending on their purchasing habits and lifestyles, and wages are never rising for all workers equally. Still, there’s no getting around it: Life is less affordable now than it was a few months ago—before the Trump administration steered the country into a war of choice in the Middle East.

And, yes, the runaway inflation that America experienced during the first part of President Joe Biden’s term in office was a lot worse than what the country is seeing now. But since early 2023, wage growth had consistently outpaced inflation even as inflation remained above the Federal Reserve’s target annual rate of 2 percent.

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Oil Execs Warn Trump Gas Prices Are About to Get Hell of a Lot Worse

Gas prices could climb even higher in the coming months.

Industry officials have already warned the White House that the prices could spike yet again due to rapidly diminishing inventories, reported The Washington Post Thursday.

Since the beginning of the Iran war, commercial and government inventories have supplemented gas consumption across the U.S. The reserves have allowed prices to hover around $4.50 per gallon for the last four months—but that could change very quickly, according to oil and gas executives, who are often loath to make such alarming predictions.

“We’re sounding the alarm on these inventories going to record lows,” American Petroleum Institute CEO Mike Sommers told Fox Business. “We have to solve this problem in the Strait of Hormuz.”

Some inventories could be wiped out in a matter of weeks, according to the Post—just in time for summer holidays.

“I have absolutely no doubt the White House—from the president on down—is fully aware of the nearly universal alarm among oil companies and analysts about the direction of travel for oil prices this summer,” Bob McNally, a former Bush administration energy adviser, told the Post.

Yet Trump has been remarkably cavalier about the rising costs. With inflation at a three-year high, Trump stunned reporters, lawmakers, and voters alike on Wednesday with just four words: “I love the inflation,” he said.

“I love it,” he insisted, pledging that oil prices will drop “like a rock” when the war ends.

But the end of the war seems to be nowhere in sight. U.S. forces bombed Iran through two nights this week, part of the White House’s latest strategy to force Tehran to make a deal, despite the obvious risks of escalation.

“If we need to negotiate with bombs, we will negotiate with bombs,” Defense Secretary Pete Hegseth said Wednesday. “We will strike them hard tonight and hopefully Iran makes a good decision.”

Meanwhile, Trump’s allies aren’t so sure that their political movement will weather the brewing economic storm. The far-right populist rode the 2024 campaign on vehement promises of affordability; through his presidency, he swore that Americans would see lower utility bills, cheaper groceries, and more American-based jobs. But that hasn’t been the case.

Instead, as millions of Americans struggle with the rising cost of living and companies contend with rattled supply chains, the president’s inner circle fear that it might be too late to fix the problem for Trump’s midterm-dependent acolytes.

“Whether it’s peak inflation or not, it doesn’t matter,” one former Trump administration official told Politico. “The die has been cast in terms of how people are looking at the economy.”

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Inflation rises to 4.2 percent in May, highest level in 3 years

The annual inflation rate increased to its highest point in three years as the cost of energy and other goods rose due to the Iran war, according to data released by the Department of Labor on Wednesday.

The consumer price index (CPI), a popular gauge of inflation, rose 4.2 percent over the past 12 months and 0.5 percent in May alone.

The CPI increase matched the Wall Street consensus and marks the first time that it has surpassed 4 percent since May, 2023, making it the highest rate since April of that year.

Energy prices rose 3.9 percent in May after having risen 3.8 percent in April and 10.9 percent in March, accounting for over 60 percent of the monthly all-items increase.

The Energy Information Administration reported that the average price for gas reached $4.49 in mid-May, compared to $4.09 in mid-April. In June, the national average has so far dropped to $4.15, according to AAA. 

The price of fuel has kept increasing as peace talks between the U.S. and Iran drag out, likely threatened by the latest exchanges, which could threaten an already fragile two-month ceasefire.

The food index also saw an increase of 3.1 percent over the past year, with a 0.2 percent rise in May. All other items saw a nearly 3-percent increase in the last year after also rising by 0.2 percent in May. 

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Abolish the Fed: The Root of Inflation, Debt, and the Destruction of the Dollar

In 1913, the year the Federal Reserve was established, an ice cream cone typically cost about $0.05 (a nickel), while the average American home cost around $2,500 to $3,500 to purchase or build. Today, the national average cost of an ice cream cone is about $4.00 to $5.50 for a single scoop, while the median sale price of an existing single-family home in the United States is approximately $404,300.

In 1970, the year before America went off the gold standard, gold traded at an average price of roughly $35.96 to $38.90 per troy ounce. Today, the live spot price of gold is approximately $4,320 to $4,350 per troy ounce.

The Federal Reserve, through its artificial control of interest rates, credit expansion, and increases in the money supply, is the root cause of inflation and the weakening of the U.S. dollar. In the United States, a capitalist country, we trust the market to set the price of shoes, sandwiches, movie tickets, and cars. Why do we not trust the market to set a market-driven interest rate?

If interest rates were determined by the market, they would never be artificially too high or too low, and America could avoid the cycles of boom and bust fueled by cheap money. Whether during a boom or a bust, both periods ultimately result in a weaker U.S. dollar. Eliminating the Fed would make the dollar stronger and economy more stable.

Before examining how the Fed contributes to inflation, currency devaluation, and economic instability, a few common misconceptions should be addressed.

First, it is not a hidden secret that the Federal Reserve is not a direct agency of the U.S. government. This is publicly available information. The Fed is a federally chartered, operationally independent institution. Its Board of Governors is a federal agency whose members are appointed by the President and confirmed by the Senate, while its 12 regional Reserve Banks are privately owned by member commercial banks. Congress retains the authority to alter or abolish the Fed by legislation.

Second, this arrangement is not unusual. Nearly every country has a central bank, although it may operate under a different name. Central banks exist on a spectrum from fully independent to fully government-controlled, with most operating as hybrids that combine varying degrees of operational independence with government oversight and accountability. The Federal Reserve is simply the American version of a central bank.

The Federal Reserve, created by the Federal Reserve Act of 1913, operates through three primary mechanisms: setting the federal funds rate, conducting open market operations, and regulating reserve requirements for commercial banks.

The core of its money-creation power lies in open market operations. The Fed controls the monetary base, currency in circulation plus deposit balances that depository institutions hold at the Fed, by buying or selling securities. When the Fed buys a security, it pays by crediting the bank’s reserve account. No prior savings are required. The reserves are created by accounting entry.

Those reserves flow into the broader economy through fractional reserve banking. When you deposit $1,000 in a bank, the bank keeps a fraction and lends out the rest. That money, spent and redeposited elsewhere, is lent out again. Through this money multiplier effect, banks expand the money supply well beyond the original deposit.

Since March 2020, the reserve requirement floor has been set at zero, meaning US banks face no mandatory reserve floor at all. The only remaining brake on credit expansion is the interest rate the Fed itself sets and can raise or lower at will.

The federal funds rate is the rate at which commercial banks lend and borrow excess reserves overnight. The FOMC meets eight times annually to set this target. This single administered price, set by committee rather than by markets, governs the cost of capital for the world’s largest economy.

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If This Is Winning, America Can’t Afford Much More of It

“We’re gonna win so much, you may even get tired of winning. And you’ll say, ‘Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.’”—Donald Trump

Donald Trump promised Americans they would get tired of winning.

If this is what winning looks like, America can’t afford much more of it.

We are losing ground economically. We are losing credibility abroad. We are losing tourists, workers, stability, trust, constitutional guardrails, and whatever remained of the illusion that the government answers to “we the people.”

The tourism economy is taking a hit, with international visitors increasingly reluctant to come to the United States. Even migration—the lifeblood of America’s economic growth, innovation, labor force and national renewal—is now moving in the wrong direction. Fewer people are coming in, more Americans are leaving, and by some estimates the country has already crossed into negative net migration.

That is not the mark of a nation “winning.” It is the mark of a nation people are increasingly choosing to escape.

Even the looming World Cup—normally an economic windfall for tourism, travel and hospitality—is being shadowed by the administration’s immigration crackdown, detention protests and threats to disrupt international travel at key airports.

That is what happens when a nation treats visitors, immigrants and dissenters as threats first and human beings second: people stop coming, businesses suffer, and fear becomes official policy.

The economy, despite the administration’s relentless victory laps, is flashing warning signs: downgraded growth, strained consumers, rising costs, depleted savings, and policy chaos that leaves families, small businesses and entire industries guessing what fresh disruption tomorrow will bring.

We are being worn down by the losses.

Meanwhile, the man who promised to end wars has presided over their continuation and expansion. The man who promised to bring prices down has helped drive uncertainty up. The man who promised to drain the swamp has turned government into a spoils system for loyalists, cronies, contractors, oligarchs and power brokers. The man who promised law and order has treated the law as something to be weaponized against enemies and waived for friends.

This is not winning.

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The Market’s Biggest Buyer May Be Disappearing

Yesterday, as part of laying out the two paths I can see the economy taking, I wrote that beneath the surface, the American consumer is tapped out. The average consumer – AKA the “retail investor” – has been a key in driving the stock market higher the past half decade.

This morning, I noticed two reports that came out yesterday that add to the conclusion that this “retail investor” looks increasingly broke. 

Yesterday The Wall Street Journal highlighted how rising prices and the highest interest rates in decades have pushed even relatively high-income households into financial distress. One example was a hospital operations director earning nearly $200,000 annually who accumulated $15,000 in credit card debt at a 26% interest rate. Despite making the minimum payments, the balance barely moved.

And the broader data confirms this isn’t an isolated story.

As I’ve noted, the percentage of credit card balances that are 90+ days delinquent climbed to 13.1% in the first quarter, the highest level in 15 years and the worst reading since the aftermath of the 2008 financial crisis. Total credit card balances reached a record $1.25 trillion for a first quarter, while average credit card interest rates have surged from 14.6% in early 2022 to roughly 21% today.

Delinquency rates have risen across low-, middle-, and high-income households alike. In other words, this is no longer just a lower-income problem. The financial strain is moving up the income ladder, which fits perfectly with what I’ve been writing about for months.

Student loan delinquencies have also exploded higher as repayment obligations returned. Credit card delinquencies have surged to post-financial-crisis highs.

Auto loan defaults, particularly among subprime borrowers, are sitting near multi-decade extremes. New data from Experian shows that nearly 19% of new vehicle loans now carry monthly payments of at least $1,000, up from 17.4% a year ago and more than triple the 5.4% level seen just five years ago.

Contrary to popular belief, these aren’t primarily luxury vehicles, either. Roughly three-quarters of the loans are tied to mainstream models, led by popular pickup trucks like the Ford F-150, Chevrolet Silverado, and Ram 1500.

The surge reflects years of rising vehicle prices and larger loan balances, with the average amount financed reaching a record $43,952 and the average monthly payment climbing to an all-time high of $770. While delinquency rates remain below 2018 levels overall, both 30- and 60-day late payments are increasing, with the most significant stress emerging among subprime borrowers, who face the highest risk of default as elevated rates and larger loan balances continue to strain household finances.

Meanwhile, as noted yesterday, the personal savings rate has collapsed back toward historic lows as households burn through what little financial cushion remains.

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Inflation Jumps to 3-Year High as Critics Say Trump Economic Promises Have Turned to Dust

A key federal inflation measure released Thursday shows that US prices jumped to a three-year high last month as President Donald Trump’s illegal Iran war and tariffs continued to push up consumer costs at gas pumps and grocery stores across the country.

The personal consumption expenditures (PCE) index, closely watched by the Federal Reserve, rose at an annualized clip of 3.8% in April, the fastest pace since May 2023. Even when food and energy prices were stripped out of the measurement, the index rose 3.3% last month compared to a year ago—the highest level since November 2023.

“Today’s numbers tell the story: Families are paying more for gas, food, and housing and utilities,” said Sen. Elizabeth Warren (D-Mass.). “Donald Trump promised to lower costs ‘on day one,’ but instead inflation is running ahead of wages as his failed economic agenda hollows out Americans’ paychecks.”

The US Bureau of Economic Analysis (BEA) also found that Americans’ personal savings rate fell to its lowest level since June 2022, plummeting to 2.6% as higher prices force households to spend more on basic necessities.

“This is stunning,” Heather Long, chief economist at Navy Federal Credit Union, wrote on social media, noting that the personal savings rate was 5.5% in April of last year. “That’s a sharp plunge. It underscores how squeezed Americans are right now with higher prices and incomes not keeping up.”

Consumer spending grew by $111.1 billion last month, according to BEA data, with “gasoline and other energy goods” making up the largest portion of the increase. Trump administration officials have attempted to spin rising consumer spending as evidence of broad optimism about the US economy, even with consumer sentiment at an all-time low.

“Prices remain stubbornly high because President Trump refuses to bring down the cost of living for working families,” said Breyon Williams, chief economist at the Groundwork Collaborative. “Trump is making Americans pay more, first via his tariffs and now because of his war in Iran, causing prices at the pump to skyrocket. At the same time, he remains fixated on his lavish billion-dollar ballroom that the taxpayers will fund and a $1.8 billion slush fund for his supporters.”

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House Passes E15 Bill as Government Panics Over Energy Crisis Begins

Congress is pushing nationwide year-round E15 gasoline because they are worried about fuel supply disruptions and soaring prices as the war cycle intensifies. They call it “consumer choice” and “energy independence,” but when you strip away the political marketing, what they are really doing is diluting the fuel supply because they are terrified of shortages and price spikes.

The House just passed H.R. 1346, the Nationwide Consumer and Fuel Retailer Choice Act, by a vote of 218-203. The bill would permanently allow year-round sales of E15 gasoline nationwide. E15 is gasoline blended with 15% ethanol instead of the standard 10%. Congress and the EPA are presenting this as some patriotic victory for farmers and consumers while pretending Americans are not noticing what is really taking place.

The government keeps saying E15 lowers prices at the pump. Of course, it does on paper. You are blending more ethanol into the fuel supply. Ethanol contains less energy per gallon than pure gasoline. That means your mileage declines and your tank empties faster. People end up buying more fuel more often while politicians brag that prices “fell” a few cents per gallon. Americans are paying more for less while Washington pretends this is economic progress.

The EPA openly admitted the purpose behind the emergency waivers was to “prevent disruption in America’s fuel supply” as the Iran war pushed energy markets into panic. They are not doing this because the economy is strong. They are doing this because they are worried about supply itself.

“President Trump is unleashing American Energy Dominance, and today’s action will directly lower prices at the pump and gives a clear demand signal to our domestic biofuels producers. Allowing the summer sale of E-15 will provide drivers more options at the pump, and deliver a bigger domestic market for American farmers,” said U.S. Secretary of Agriculture Brooke L. Rollins. The government is congratulating itself for putting lipstick on a pig. Trump spent years condemning Biden’s energy policies that led to elevated prices for different reasons. Washington does not want voters to look at an $ 8-per-gallon situation and suddenly realize that government policy has failed yet again because politicians continually act in their own self-interest while jeopardizing the entire country. The people always suffer when government instigates war. Quite unfortunate as Trump promised to keep America out of the Middle East, but somewhere along the way he morphed from a businessman into a politician. Human nature is consistent.

Governments dilute and stretch what they can at the beginning of a crisis. They lower standards quietly while telling the public everything is under control. You see it in currencies, banking, food quality, and now fuel. The objective is always the same: make a limited supply appear larger. Could this improve consumer sentiment regarding energy? People are still going to pay more at the pump. The end result is higher prices which equates to angry and fearful consumers. It is absolutely insulting for our overlords to question our intelligence in this manner. They genuinely believe we are too stupid to notice.

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Japanese Are Feeling the Economy Collapse in Real-Time

Japan spent decades trying to convince the world that endless debt, money printing, and zero interest rates could continue indefinitely without consequences. Now ordinary Japanese citizens are beginning to feel the pressure directly as inflation rises, wages fail to keep pace, and living standards steadily deteriorate underneath the surface.

For the first time in generations, Japanese households are experiencing sustained cost-of-living stress while confidence in economic stability weakens sharply. Recent polling showed more than 80% of Japanese households now believe prices are rising faster than their incomes, while consumer confidence remains near recessionary levels despite years of government stimulus and intervention. Food inflation, utility costs, transportation expenses, and housing-related costs have all risen materially as the yen weakened dramatically against the dollar over recent years.

The psychological impact inside Japan is enormous because the country spent decades living through deflationary conditions where prices remained relatively stable. Japanese consumers became accustomed to stagnant prices and low borrowing costs. Once inflation finally arrived, the shock to household budgets was immediate.

Rice prices alone surged more than 20% year-over-year at one stage while basic food staples, imported goods, fuel, and electricity all moved sharply higher. Japan imports enormous quantities of energy and raw materials, which means yen weakness translates directly into higher consumer prices across much of the economy.

This is exactly what I warned would eventually happen once central banks lose control of sovereign debt cycles.

Japan now carries government debt exceeding 260% of GDP, the highest among major industrial economies. For years the Bank of Japan artificially suppressed interest rates and monetized government debt through massive bond purchases. The BOJ effectively became trapped because allowing rates to normalize aggressively would destabilize the government’s own financing structure.

Now Japan faces the consequences of that trap.

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Exploiting Veterans To Advance An Unaffordable Housing Agenda

One of the side effects of our misguided monetary policy in recent decades is the spike in home ‘values’.  Housing is one of the most common inflation hedges this side of gold.  It gives investors a relatively safe place to park their resources, and put them to work. 

But it’s not just big institutional investors who act as landlords.  Almost 9 in 10 such homes are owned by those who can count their entire portfolio on one hand. 

So while federal lawmakers bemoan the ‘affordability’ crisis that they arguably created, state and local lawmakers are left to deal with it.  Too often though, they make things worse.

Last week the San Antonio City Council banned landlords who own five or more rental homes from declining to rent to veterans for the express reason that they use a federal housing voucher as partial payment. 

This is another example of government showing insufficient understanding, much less respect for, the supply side of the economic equation.  This tendency has even penetrated our cultural lexicon.

When my financial literacy class discussed “unearned” income recently, returns from rentals was included with investments in stocks, bonds and the like.  I felt the need to clarify the term. 

Speaking from experience, landlords are ‘on’ 24/7, dealing the tenant concerns, neighborhood/HoA issues, etc.  Plus, when tenants move out, the clock starts ticking. 

The condition of the property must be assessed, cleanup is needed, and repairs might be necessary.  Then there’s marketing, sifting through prospective new tenants, and signing an agreement.

If I got that knocked-out in 4-6 weeks, I was content.  Considering I had a full-time job, was raising four daughters, and teaching at night, I considered that timeframe a win.  That is not “unearned.” 

Insert government meddling, and you introduce a new, unique headache into the process. 

When I started renting, my realtor brought up the possibility of accepting section 8 vouchers.  “It’s a steady income,” he said.  I declined, but not because I’m uncharitable.  Once when a tenant’s husband left, I lowered her rent for the remainder of the lease.

I declined section 8 because I didn’t want to deal with potential bureaucratic hassle, like the inspection headaches laid out by a local landlord.  Sidewalk problems that are the “city’s responsibility.”  Repairs to floors devoid of any actual problems.

I just wanted to convert the house I used to live in into a rental that could eventually help pay for my daughters’ college.  Landlords like the author on the other hand, are trying to help others in the community of lesser means, people who could use a hand-up. 

Aren’t citizens like her the same ones whose virtues are extolled by politicians, aiding citizens that those pols claim to care for?  This issue presents one of the clearest contrasts between the private sector and the public sector.

On the one hand, you have people serving a market demand, in this case with altruistic intentions, and with their own resources. 

On the other hand, you have politicians who promise ‘affordable’ housing on the campaign trail, put citizens on the hook for a staggering amount of debt that their property taxes finance, and then kneecap those who are already doing the work. 

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