Inflation jumps to 7.9 percent in February — Highest in 40 years

Today, the Bureau of Labor Statistics (BLS) announced that inflation was 0.8 percent in February and 7.9 percent over the year (for the Midwest, the figures were 0.9 percent and 8.0 percent, respectively). This is the fastest annual rate of increase since January 1982. Stripping out volatile food and energy prices to get ‘core inflation,’ prices were up 6.4 percent over the last year, “the largest 12-month change since the period ending August 1982.”

The BLS reports that:

Increases in the indexes for gasoline, shelter, and food were the largest contributors to the seasonally adjusted all items increase. The gasoline index rose 6.6 percent in February and accounted for almost a third of the all items monthly increase; other energy component indexes were mixed. The food index rose 1.0 percent as the food at home index rose 1.4 percent; both were the largest monthly increases since April 2020.

These numbers are bad. I wrote in October about how America might be in for higher inflation over an extended period, and, I’m sad to say, the data is bearing that out. A key thing to note is that the monthly rate of increase in the CPI — 0.8 percent — was up from 0.6 in January.

Another BLS release today illustrates why this surging inflation is a problem. Data for real earnings — that is, adjusted for inflation — showed that:

Real average hourly earnings for all employees decreased 0.8 percent from January to February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from essentially no change in average hourly earnings combined with an increase of 0.8 percent in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings decreased 0.5 percent over the month due to the change in real average hourly earnings combined with an increase of 0.3 percent in the average workweek.

Over the past year, the BLS reports:

Real average hourly earnings decreased 2.6 percent, seasonally adjusted, from February 2021 to February 2022. The change in real average hourly earnings combined with an increase of 0.3 percent in the average workweek resulted in a 2.3-percent decrease in real average weekly earnings over this period.

You might have more dollars in your paycheck than you did this time last year, but on average, they will buy less. And it is real, inflation-adjusted numbers that matter for economic well-being, not nominal ones. I occasionally see people wondering why Americans aren’t feeling this ‘great’ economy we’re supposed to be having. The fact that in real terms they are, on average, becoming worse-off should explain that.