The Consumer Price Index has become the Consumer Price Increase for many Americans. The BLS Consumer Price Index is issued every month. It measures the prices of dozens of items. In most months this year, it is up more than 7% year over year. That sits around a four-decade high.
The primary challenge for Americans is whether their pay has risen by 7%. For many, that is not the case.
Another challenge is the increase in many essential items is well above 7%. For example, the prices of fuel oil, eggs, margarine, flour, and public transportation are higher by over 25% based on the same yardstick.
The erosion in purchasing power in 2023 will be a drag on the economy and almost certainly a reason it will tip into a recession. This then becomes a vicious cycle. A slow economy leads to more layoffs. Fewer Americans working undermines GDP increase. The cycle usually starts to break when unemployment is so high that consumer activity slows down economic activity. How high does unemployment have to be to bring inflation below the Fed target of 2%? Larry Summers, one of America’s leading economists, believes the figure is between 5.5% and 7.5%. That means a loss of millions of jobs.
Inflation rates may be undercut in other ways. The drop in real estate prices will make housing less expensive for some Americans, but home purchases number in the hundreds of thousands per year, which means the effects are muted. And housing costs come with mortgage rates that are higher than they were a year ago and a sharp increase in the cost of home energy use.
There is an extent that, as far as the national economy is concerned, people face challenges down the two roads of either high costs of living or a risk to the future of their jobs.
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