Have you noticed you’re spending more on groceries lately, and that it costs more to gas up your car? You’re not imagining things. Prices of everything from household items to commodities are going up, thanks partially to inflation, an economic phenomenon that sees a steady rise of prices for goods and services eroding purchasing power — or meaning you can buy less with the same amount of money.
The U.S. Labor Department’s Consumer Price Index is an inflation indicator that measures what consumers pay for everyday items from food and gas to toilet paper and cars. It increased 4.2 percent in April, the biggest increase since November 2008. In addition, prices of four CPI subgroups that are closely associated with the wellbeing of American families — food, energy, cars, and transportation services — saw the most significant jump.
The latest CPI data shows that prices of food increased 2.4 percent over the past 12 months. While at first glance that figure may not seem significant, for everyday Americans, a few dollars here and there quickly add up.
Within the food category, for instance, meat prices have risen 5.5 percent, and the costs for apples went up 10 percent to 20 percent depending on the variety. In addition, the prices for agriculture commodities such as corn, soybeans, and wheat all have reached their highest level in six years.
That particular jump in prices may be good news for farmers, but it’s bad for pretty much everyone else. It means higher food costs for everything from bread to cereals to salad dressings. Kellog’s Chief Executive Officer Steve Cahillanethe said his company had to raise the prices of its products because “We haven’t seen this type of inflation in many, many years.”
All Americans Feel the Bite of Inflation
Indeed, American families don’t need a CPI report to tell them their grocery bills have recently gone up. Rising food prices already forced some Americans to penny-pinch. A resident of Denver, Colorado, told the Wall Street Journal she “switched from buying fresh to frozen fruit and vegetables because they are less expensive and last longer.”
Phil Lempert of SupermarketGuru.com warns food prices will continue to increase for at least a year and a half, which is terrible news for American families, especially those already facing food insecurity. Due to the economic downturn and rising unemployment caused by government-imposed lockdowns and bailouts, about 23 percent of American households are experiencing food insecurity. Rising food prices mean more Americans will go hungry.
Prices for many household items, from diapers to toilet paper to washing machines, are increasing as well. Even above this, however, the price increase of used cars and trucks — often seen as one of the key indicators of inflation — stood out, since it accounts for more than one-third of the CPI increase in April.
The index for used cars and trucks rose 10 percent, the largest one-month increase since the index was created in 1953. As such, many Americans are growing increasingly concerned they will not be able to find affordable vehicles to take them to work or anywhere they need to be.
Energy, Cyberterrorism, and Gas Lines
The biggest driver of the CPI, however, is energy prices, which increased 25 percent from a year ago, including a nearly 50 percent jump for gasoline and almost 40 percent for fuel oil. The recent cyber-attack that forced the shutdown of the Colonial Pipeline has put further pressure on gasoline prices. The pipeline supplies about 45 percent of the fuel consumed on the eastern coast of the United States.
There are now long lines outside of gas stations from Florida to Virginia. Many gas stations ran out of gasoline and had to put out “Out of Gas” signs, something Americans haven’t seen since the 1970s. Both North Carolina and Florida declared a state of emergency amid fuel supply shortage and the fear the situation has induced among consumers and businesses.
The shortage has pushed already increasing gas prices even higher. According to AAA data, the national average has increased to $3.008 as of May 12, a level Americans haven’t seen since late 2014. Experts expect the price of gasoline will continue to rise as the Colonial Pipeline slowly reopens and the demand for Memorial Day travel surges.
AAA estimates that more than 37 million people plan to travel at least 50 miles from home during 2021’s Memorial Day Weekend. But a gas shortage and higher gas prices may complicate these holiday plans. According to a 2019 survey, nearly half of the respondents said they would change their habits if gas prices rose to $3.00 a gallon.
Rising Lumber Costs
Besides food, gas, and cars, another category that significantly affects American families and American businesses is lumber. The price of lumber has gone up 340 percent since the lockdowns began. As of May 7, the cost per thousand board feet of lumber soared to $1,686, an all-time high. This surge is partly the result of a supply-demand mismatch caused by government policies.
Last year, government lockdowns caused many mills to halt production or even go out of business. Simultaneously, the demand for lumber went up when Americans who were forced to shelter at home rushed to buy materials for home improvement projects. Then the Federal Reserve responded to the lockdown-induced economic recession with near-zero interest rates, which contributed to a housing boom. This government-driven demand for DIY projects and new homes has exacerbated the lumber shortage and together driven up the price of lumber.
The high cost of lumber, in turn, has made new homes more expensive. According to the National Association of Home Builders (NAHB), expensive lumber costs now add $36,000 to the average of new homes. NAHB Chairman Chuck Fowke said in a statement. “This unprecedented price surge is hurting American home buyers and home builders and impeding housing and economic growth.”
The National Association of Home Builders reports the Trump administration’s 24 percent tariff on Canadian softwood lumber exports also contributed to the jump in lumber prices. This March, the Biden administration lowered the tariffs on Canadian lumber exports from more than 20 percent to 9 percent in an effort — albeit belated — to reduce the costs of lumber and roll back the negative ramifications of the tariffs.
Even one of the wealthiest people in America felt the effects of inflation on his business. Warren Buffet, the famous CEO of Berkshire Hathaway who owns nine home builders in his conglomerate, complained at the recent Berkshire shareholder meeting: “We are seeing very substantial inflation … The costs are just up, up, up. Steel costs, you know, just every day they’re going up. We are raising prices. People are raising prices to us, and it’s being accepted.”
Penny-Pinching Will Be Here to Stay for a While
While larger businesses may either have more capacity to absorb inflation or can afford to pass on higher costs to consumers, inflation hurts everyday working people the most because they have less ability to withstand price increases on a limited income. So they resort to penny-pinching: buying less than they need; switching from higher-quality brands to lower quality but cheaper brands; and postponing or foregoing specific expenditures such as eating out at restaurants or taking trips to visit friends or family. Since consumer spending drives about 70 percent of the U.S. economy, when consumers are cutting back, the U.S. economy will suffer.
Don’t expect the well-to-do American ruling class to understand the economic struggles affecting most Americans. Indeed, the Washington Post tried to soften the blow of the rising inflation numbers by presenting inflation data without food and gas. The Post claims not only that inflation isn’t a problem but also that “inflation looks even tamer” when removing the effects of food and gas — the two most important necessities for everyday American families.
Ultimately, the rising inflation Americans are currently facing is largely caused by the bloated money supply resulting from the government’s multiple stimulus packages. Still, President Biden and his Democrat allies in the U.S. Congress are pushing for trillions in more government spending. Unfortunately, inflation in the United States is likely to worsen, which means millions of American families will have to do more penny-pinching for the foreseeable future.