Inflation is making headlines again now. The federal government's latest data reveal that consumer prices rose 7.5 percent from January 2022 to 2022. This is the highest rate of price inflation we have seen in nearly 4 decades!
What performs this mean for everyday American families?
A Large amount of People Are Hurting
A new analysis from Moody's Analytics reports that the average U.S. household is paying one more $250 a month thanks to this inflation.
\”A large amount of individuals are hurting because of high inflation,\” Moody's senior economist Ryan Sweet told The Wall Street Journal. \”$250 a month – that's a big burden. It really hammers home the point of 'what may be the price of inflation?'\”
This disturbing revelation brings into focus something we already knew about inflation: it hurts the significant class probably the most. While $250 a month is hardly a noticeable increase for millionaires, that could easily strain a working-class or even middle-class family's budget past its breaking point.
Money is Melting within our Pockets
Price inflation also erodes Americans' hard-earned savings in a way that's just as painful as the government directly hiking their taxes. As economist Ludwig von Mises colorfully place it, inflation happens when \”money, like chocolate on a hot oven, [is] melting within the pockets of the people.\”
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That's precisely what we're living through. However this leaves us with a more essential question: How come we seeing this improvement in consumer prices? Could it be some abstract economic phenomenon beyond our control? Could it be due to “corporate greed?”
“Inflation is a Policy”
On the contrary, inflation directly traces back to decisions made by our elected (and unelected) government officials.
\”The most essential thing to remember is the fact that inflation isn't an action of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague,\” Mises famously explained. \”Inflation is really a policy.\”
The primary cause of today's inflation is the decision by the Fed, America's central bank which controls the U.S. dollar, to create trillions of recent dollars out of nothing to ostensibly \”stimulate\” the economy throughout the pandemic.
Federal Reserve Chairman Jerome Powell openly admitted just as much in an interview with CBS.
\”[Is it] fair to state you simply flooded the system with money?\” a reporter asked.
\”Yes,\” he responded. \”We did. That’s a different way to consider it. We did.\”
\”Where will it come from? Would you just print it?\” the journalist accompanied.
\”We print it digitally,\” Powell replied. \”So as a central bank, we've the ability to create money digitally- that actually increases the money supply. We print actual currency and we distribute that through the Fed banks.\”
To understand what \”flooding the system with money\” looked like, just think about the following graph from the money supply – and how dramatically it soared at the beginning of 2022.
A Lesson from Econ 101
How does increasing the amount of cash available lead to higher prices?
As FEE economist Peter Jacobsen has explained, \”If more dollars chase the exact same goods, prices will rise.\”
We're watching this Econ 101 lesson engage in before our eyes. And it is a painful lesson indeed for the countless American families which have hundreds more out of their monthly budgets just to tread water. Here's hoping our policymakers study from their mistakes before it even gets worse.
Brad Polumbo (@Brad_Polumbo) is really a libertarian-conservative journalist and Policy Correspondent in the Foundation for Economic Education.