We should always hate inflation, but is anyone surprised since we went through a year filled with shutdowns? We’re on a bumpy road.
Inflation: “Inflation is the rate at which the value of a currency is falling and, consequently, the general level of prices for goods and services is rising.”
The data from the Bureau of Economic Analysis (BEA) shows personal consumption expenditures (PCE) increased while personal income, disposable personal income (DPI), and spending went down in May. The numbers (their emphasis):
Personal income decreased $414.3 billion (2.0 percent) in May according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) decreased $436.3 billion (2.3 percent) and personal consumption expenditures (PCE) increased $2.9billion (less than 0.1 percent).
Real DPI decreased 2.8 percent in May and Real PCE decreased 0.4percent; goods decreased 2.0 percent and services increased 0.4 percent (tables 5 and 7). The PCE price index increased 0.4 percent. Excluding food and energy, the PCE price index increased 0.5 percent(table 9).
Why did I concentrate on 3.4% instead of 0.5%?
I concentrated on it because the 3.4% increase shows the impact of the economy reopening after the pandemic. It is the fastest increase since April 1992.
The 3.4% increase does not include volatile food and energy. If you have those, it goes up to 3.9%. The statistics eliminate those two since their prices “tend to swing up and down more dramatically and more often than other prices.”
Therefore it makes it easier for us “to see the underlying trend by excluding” food and energy.
However, energy prices increased by 27.4% and food by 0.4%.
The personal income decrease comes from the “decrease in government social benefits,” and the unemployment insurance also went down. Oh, look. Government interference skewed the numbers. Once most of those go away, we should have better numbers in the next couple of months.
Those decreases helped flatten personal spending, but Americans also backed away from big-ticket items like houses. They spent more on services.
A report in early June showed people increasing spending at restaurants and retail stores. Demand is booming, which has caused disruptions in the supply chain. Stores and manufacturers cannot keep up with “key products.”
Hiring remains low because why work when the government gives you money for nothing? Hopefully, hiring will pick up soon. Companies have started to increase hourly pay to entice people back to the workforce.
We should always hate inflation. However, my financial friend said it’s the media bogeyman, and it’s not the end of the world.
We knew we would encounter a rocky road on the way back from the unnecessary shutdowns. These are the growing pains.
I cannot believe I am saying this, but I agree with the Federal Reserve. Patience is key. We can not tell for sure if inflation is temporary or not from a few reports.DONATE
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