As money growth slows, so does inflation
Recognizing important economic relationships allowed us to see inflation coming back in 2021. Today, they strongly suggest a sharp slowing of inflation ahead.
Last week, at the unveiling of his official White House portrait, President Obama said to President Biden:
Thanks to your decency and strength, maybe most of all, thanks to your faith in our democracy and the American people, the country is better off than when you took office.
Data released this week by the Bureau of Labor Statistics (BLS) shows why Americans might not agree.
The BLS reported on Tuesday:
Real average hourly earnings decreased 2.8 percent, seasonally adjusted, from August 2021 to August 2022. The change in real average hourly earnings combined with a decrease of 0.6 percent in the average workweek resulted in a 3.4-percent decrease in real average weekly earnings over this period.
Indeed, as Figure 1 shows, adjusted for inflation, average hourly earnings were 4.1% lower in August than they were when President Biden took office. Even worse, they were lower than they were in July 2019. In nominal terms wages have never been higher, but higher prices have more than wiped that out.
Figure 1: Average Hourly Earnings of All Employees, Total Private, Dollars per Hour, Monthly, Seasonally Adjusted, August 2022 $
The damage done to American’s financial well-being by inflation was seen in another report out this week. The Wall Street Journal reports:
Median household income was essentially unchanged last year on an inflation-adjusted basis from the previous year and was recorded as about $70,800, the U.S. Census Bureau said Tuesday in its annual report on the nation’s financial well-being.
The lack of any significant growth for 2021 follows a decrease in incomes recorded in 2020, the first year of the pandemic.
The Census Bureau said the overall median household income for 2021 wasn’t statistically different from the 2020 estimate of about $71,200.
This comes after strong increases in real median household incomes from 2014 onwards, with a particularly strong rise from 2018 to 2019. Indeed, as Figure 2 shows, median household incomes in Minnesota in 2021 were 6.8% lower than in 2019 in inflation adjusted terms.
When Americans ask themselves whether they are better off, economically at least, they might reach a somewhat different answer to President Obama.
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