CPI data released this morning revealed that the year-over-year inflation rate has hit 7%. This is the highest rate experienced in 40 years (since 1982) in the USA and there is no sign that we will be inflecting downward any time soon. Inflation is a tax on the working class that makes our salaries and savings worthless over time. As the purchasing power of the dollar falls due to inflation, money simply does not go as far as it did a year ago. In a simplistic example, if your yearly earnings amounted to $100,000 in December of 2020, it is now as if your salary is $93,000.
Vance Ginn, the Chief economist for Texas Public Policy Foundation, tweeted this in response this morning,
The current administration has continued to downplay the disastrous numbers caused mostly by the increase in money supply over the last few years. Most economists estimate that since the beginning of the pandemic the Federal Reserve has increased our money supply somewhere between 30%-40%. In one year! Fiscally responsible economists have been sounding the alarm that massive inflation was coming and it has finally arrived.
Inflation coupled with massive supply chain shortages has many economists and taxpayers worried. The general consensus is that things are going to get worse before they get better. With a monetary system based on fiat currency, one of the only weapons we have against inflation is interest rate increases. The Federal Reserve has already promised this will happen, at least 3 times this year! The typical equation (the one used in the 80s to get inflation under control) is multiplying the inflation rate by 1.5%. This would mean at current inflation levels we would need an interest rate increase to 10.5% in order to rein in inflation.
The Federal Reserve is proposing a rate much lower than that. The question is, will inflation begin to inflect downward on its own in the next few months as many advocates of Modern Monetary Theory are claiming, or will it continue to persist into hyperinflation?
We will have to see what the numbers show us over the next few months as new CPI data is revealed. TFR remains extremely skeptical this problem is going to “take care of itself” and will not improve until massive economic policy changes are implemented.