Above Photo: Elena Perova / iStock.com.
Working households struggle as wages don’t keep up.
San José, California – On Friday, June 10, the Bureau of Labor Statistics reported that prices for workers’ families, the so-called Consumer Price Index-Wage or CPI-W rose by 9.3% as compared to prices a year ago. This rate of inflation is near a 40-year high, only exceeded by the 9.4% increase in March. The last time that prices rose so quickly was in November of 1981.
The headline number that the corporate media reported was a smaller 8.6%. This was the number for the CPI-Urban or CPI-U that includes households with managers and professionals as well as wage workers. The CPI-W inflation is higher than the CPI-U because the CPI-W puts more weight on the prices of food and transportation that have been bedeviling working families. Food prices are up more than 10% over the past year while gasoline is up almost 50%. On the other hand, recreation costs, which are given a more weight in the CPI-U, are up less than 5%, bringing down the CPI-U.
The CPI-W was the original Consumer Price Index that the federal government began to report on in 1919. After the introduction of the CPI-U, which included more higher-income earners, in 1978 the Bureau of Labor Statistics reported data for both for many years. But in May of 2012, the Obama administration stopped publishing the data breaking down the CPI-W. At the same time the Bureau of Labor Statistics included more “attractive” data tables in the report. The government seems to have taken a page from corporate marketers who will often put a lesser product in a more attractive package.
In response to the high level of inflation, the Federal Reserve Bank, the U.S. central bank, has raised interest rates twice, the second time by one-half of one percent instead of the typical one-quarter percent increase. The Fed is expected to raise interest rates by a half a percent again in June and also July. This is one of the most aggressive rounds of interest rates increases that the Fed has ever done.
Interest rate increases will slow borrowing and spending on goods and services, thereby slowing increases in prices. But this also tends to raise the unemployment rate and in most cases is accompanied by a recession. Thus, more and more economists are talking about the growing likelihood of “stagflation” where the economy goes into a recession while inflation stays high.
The problem that the Fed faces is that many of factors that are spurring inflation are coming on the supply side, not the demand side. One trigger for many of the shortages was the pandemic, where globalized supply chains were subject to factory closures and shipping problems. Another factor is climate change, which has contributed to the worst drought in 50 years on the island of Taiwan, where most advantage chips are made, using processes that are very water intensive. These chip shortages have caused a slowdown in auto production, leading to higher car prices.
But the U.S. government’s policies to wage economic wars on first China, and now Russia are also a factor. About half of all the goods made in China that the U.S. buys have a 25% tariff, leading to higher prices. The tariffs and embargoes on solar panels in particular are slowing or even stopping solar energy projects, driving up prices for electricity. While the Biden administration is blaming Russia’s president Putin for high gas prices, the fact is that the Russian government has not limited the export of oil to the United States. It is the United States embargo on Russian oil and the U.S. economic war on Russia that is making it difficult for Russia to export its oil, driving up the price of oil and oil products like gasoline.
The Biden administration does have a point in placing some of the blame for high prices on big corporations that have been raking in profits, such as oil corporations and meat packers. When a few large corporations dominate an industry, it is very difficult for any new companies to break in. So when prices go up, instead of new firms coming in and adding to supply, the existing companies can just sit back and let the profits roll in. One thing that can be done in a capitalist economy is to place price controls on key industries like gasoline and meat production, to freeze or even lower prices while making sure that the companies don’t try to limit production.