The US Bureau of Labor Statistics reported September 11 that “core” inflation (excluding energy and food prices) rose 3% year-on-year.
However, nobody believes the readout. Most middle-class families say that the same basket of essentials—house, car, food, utilities—costs 10% more than it did a year ago.
Inflation tops the worry list of American voters, with 62% saying it’s a “very big problem,” according to a recent Pew Survey. Too much money chasing too few goods causes inflation, compounded by the Biden administration’s budgetary largesse.
US federal spending would have been about US$5.5 trillion if Biden had kept to the long-term trend. Instead, Biden offered an additional $3 trillion handout in 2021 after the economy was already recovering from the Covid recession and kept total spending 20% higher than the trend line.
That’s where the money came from to chase the goods.
When Vice President Kamala Harris proposed a $6,000 child tax credit, a $25,000 home-buying credit and a $50,000 small business credit at the September 10 debate with Donald Trump, the former president might have accused her of playing Santa Claus with an empty sled.
The more handouts for favored constituencies, the faster prices will rise. Americans are worse off now than they were in 2021, and their situation will decline further if the spending binge continues.
Potato chips might not count for much in a middle-class family’s budget, but they now cost $6.25 for a one-pound bag, compared to just $4.94 when Joe Biden took office in 2021, an increase of 27%.
A loaf of bread costs $1.95, compared to $1.50 in 2021. Medium fries at McDonald’s now cost $4.19, up 134% since 2019, and a McChicken sandwich costs $3.89, a 202% increase over the same period.
The cost of owning a new car rose by $115 in 2024 to $1,024 a month, according to the American Automobile Association. That’s a one-year increase of 13%, including the cost of financing and insurance.
If you kept your clunker, you paid dearly for auto parts to keep it running. A car battery costs 15%-20% more this year than last, according to a PBS survey. Auto insurance costs 26% more in 2024 than a year ago and 40% more than before the pandemic.
In June 2024, Americans paid 16.4 cents per kilowatt hour of electricity, a 29% increase in a single year. How, then, does the Bureau of Labor Statistics get away with estimating inflation at just 3%?
It calculates inflation wrong, according to Barack Obama’s former Treasury Secretary Lawrence Summers and a team of economists. For one thing, it doesn’t count interest costs.
The above chart produced by Summers and his colleagues shows inflation peaking at 18% in 2022.
We don’t know the correct inflation rate because we can’t believe the numbers coming out of Washington. But 10% is a reasonable guess, based on what middle-class families pay out every month.
A failsafe gauge of the conditions of US households is the personal savings rate, now at just 2.9% of disposable income. That’s the lowest in history, except for a brief period during the mid-2000s when Americans borrowed recklessly against what they thought were rising home prices. Households have nothing left at the end of the month.
Another gauge of the squeeze on households is credit card debt outstanding. Since Biden took office, that’s up 40%, to $1.4 trillion from $1 trillion. Americans who can’t make ends meet use their plastic.
Americans know they’re hurting, and they are unlikely inclined to believe that a repeat of the last four years shifting from Biden to Harris will make things better.
Follow David P Goldman on X at @davidpgoldman