“The American people now believe that inflation is the most important issue facing the economy and the country, and they don’t think that President Biden is paying attention to it. This explains why so many Americans disapprove of his economic performance—and why it is undermining his presidency.” ~ The Brookings Institute

It only takes a visit to a grocery store to see the highest inflation in four decades in action. A pound of bacon costs 29% more today than a year earlier, according to the U.S. Bureau of Labor Statistics, while beef prices climbed 19% in the same period and so have baby formula—that is, if you can find any. Inflation is tracked through the Consumer Price Index (CPI), which measures the cost of a basket of 175 consumer goods and services—everything from food items to healthcare to housing prices.

In a recent CBS/YouGov survey, 58% of Americans said that President Biden wasn’t focusing enough on the economy and even more—65%—said this about inflation. Only 33% say that Biden and the Democrats are focusing on issues they care about the most.

According to a CNN poll, 7 in 10 Americans think the government isn’t doing enough to reduce inflation and to relieve disruptions in the supply-chain.

Many economists and the Federal Reserve argued for a year after prices began rising that inflation would be “transitory”. Their views of inflation changed abruptly when the annual rate of inflation reached 7.5%. The news vindicated the views of dissenting economists such as Larry Summers and Jason Furman that inflation was likely to be persistent.

Recent surveys show that inflation has become the dominant factor determining the midterm voters’ view of the economy. Asked to identify the “best measure” of how the economy is doing, 52% those Americans surveyed pointed to the cost of goods and services, compared to 17% for unemployment and jobs and just 6% for the stock market.

The invisible regressive tax of rising inflation has harmed working and middle-class Americans. In economic terms, inflation is the loss of purchasing power over time that’s reflected in rising prices for a broad range of goods and services. It’s typically expressed as the annual percentage change in the prices of those items. Purchasing power means how much your money can buy—its “buying power.” You lose purchasing power when prices go up and gain purchasing power when prices go down.

The trillions of dollars in fiscal spending and money printing from the Federal Reserve has had a dramatic effect on the price of ordinary goods and services. In short, inflation has become a economic menace for every working American.

Most Americans believe that there is a correlation between increased fiscal spending, monetary loose policy, and inflation, and the administrations’ tone deaf argument that its legislative agenda, which includes Build Back Better, is anti-inflationary has been viewed with skepticism.

Although the Biden administration wants Americans to focus on rapid job creation and the sharp decline in unemployment, it seems that the people are more likely to emphasize rising prices until the pace of inflation abates.

With delays receiving goods ordered online, restaurants unable to fully staff, and skyrocketing gasoline prices, Americans care more about rising prices than falling COVID-19 infection rates.

In the absence of a high-profile anti-inflation effort, Americans are reaching their own conclusions about the administration’s agenda and efforts to focus on what’s most important.

In reality, surging inflation is being caused by an imbalance between supply and demand. Emerging from the pandemic, we are in a period of high demand boosted by unprecedented fiscal and monetary stimulus. Basically, people have money and now they’re spending it.

Federal Reserve Bank Chairman Jerome Powell called these supply chain disruptions temporary “bottlenecks” – such as the shortage of computers chip that is limiting automobile production.

The primary driver of the current inflation comes through money printing by the Federal Reserve. The Fed nearly doubled its bond purchases since the beginning of the pandemic, pumping almost $4 trillion into the economy, according to The Hill. The Fed effectively monetizes the federal government’s debt, creating both a cover for higher deficits and increasing the money supply further.

The second means of inflation comes through massive fiscal spending. Between several “emergency” pandemic measures hastily passed,the economy is looking at the potential for 1970s economic stagflation.

In essence, there is far too much money in the hands and bank accounts of Americans chasing an increasingly limited supply of goods and services, whether it is food, used cars, gasoline, houses, restaurants tables, airline seats or more. This is the textbook definition of inflation.

“You lose money every day your money is in savings since inflation erodes the real purchasing power of your cash.” Ramit Sethi

References:

1. https://www.brookings.edu/blog/fixgov/2022/02/17/why-inflation-is-president-bidens-biggest-political-problem/
2. https://thehill.com/opinion/finance/552890-growing-inflation-is-bidens-hidden-tax-on-working-americans/
3. https://www.acorns.com/money-basics/the-economy/what-is-purchasing-power-and-how-does-inflation-affect-it-/