There are lots of big topics dominating the news these days. We’re getting pretty darn tired of most of them, like the omicron variant of the coronavirus, the open-shut door carousel at our local schools, renewed sheltering-in-place orders, a drought that comes with a tsunami warning and muddy feet and distant drumbeats about what’s being called “existential threats” to our democracy. But the biggest — and most real — current news topic is probably inflation, an economic menace we haven’t had to face for almost 40 years.
Inflation is most definitely here and it is not going away soon. While the causes of rapidly rising prices for everything may be global, the costs are as local as our kitchen tables, gas tanks and roofs over our heads. It will take moving some big levers atop the federal government and more international monetary maneuvering to eventually tame this wave of higher costs and decreased purchasing power. So, meanwhile we’d all better start looking at how to trim our grocery bills, curb our entertainment appetites and teach our children about delayed gratification.
The current inflation rate is 7.04%, according the Bureau of Labor Statistics (BLS). The Federal Reserve Bank officials and BLS forecasts now predict we will have to live with inflated prices for the remainder of 2022. Food prices have hit households the hardest. Beef costs are up almost 15% and bacon is up 18%. Eggs and chicken prices are up 10% and bread, tortillas and cereal are costing 5% more than a year ago. Even a can of beans probably costs more today, but would be a good cost-saving substitute over most meat choices.
When the cost of such basic goods as food and gas jump up in prices like we’re seeing, we know that low income households always get hit the hardest. When a gallon of gas costs $5, a full tank of gas can equal more than the cost of last year’s bag of groceries.
It’s very popular in the news right now to blame somebody for all this inflation. President Joe Biden is sure taking his lumps and the Federal Reserve bankers are getting rebuked for slow action to adjust interest rates that might cool down our over-heated economy.
But let’s remember how we got here. Two years ago most of our economy was shut down in reaction to the global pandemic. Jobs were lost and whole industries like hospitality and retail still have not recovered. Didn’t we all applaud the $1.9 trillion federal stimulus money and the $600 and $1,200 checks we got in the mail? Remember how many Sonoma County jobs and small businesses were saved by the federal Payroll Protection Program?
Well, all that instant stimulus definitely helped in the short term but it enflamed our national and global economy in ways we are now paying for. When the economy was shut down in March 2020, car manufacturers and other industries shuttered many factories. They shut down their supply lines. They reasoned that consumers without jobs would not be able to buy their products.
But the massive stimulus programs and the federal government and the Fed Reserve’s move to cut interest rates to zero has now led to a year of historical job creation. Instead of low car sales, the prices for used and new vehicles have never been higher (46% over a year ago.)
We need our over-heated economy to cool down. Thankfully, just about all the forces-to-be now realize this fact and have kicked in the anti-inflation schemes they pulled out of their 40-year-old playbook.
According to the official Consumer Price Index, the rate of inflation may already be slowing. Global supply lines that end at local doorsteps and business shelves are beginning to move a little better. Wall Street bankers are grudgingly getting ready to accept slightly increased interest rates.
As high as current food and gas prices are, lots of us can remember when things were once a lot worse. Forty years ago, the interest rate on a home mortgage was 18%. Today’s average mortgage rate is 3% or lower.
