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Prices in May Rose 3.4% Compared to a Year Ago, But Spending Went Flat

Prices in May Rose 3.4% Compared to a Year Ago, But Spending Went Flat

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.

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Comments

Dolce Far Niente | June 25, 2021 at 11:42 am

When the government printing presses churn out more and more dollars, inflation is inevitable and yes, sweetness… its permanent.

The dollar you earn or save today will be worth less in 6 months, which is one reason why increasingly nervous citizens seek to purchase tangibles, creating price spirals from supply shortages unrelated to the actual decreasing value of the dollar.

    Also, the current regime has a huge interest in suppressing what the real inflation numbers are. The numbers we’re seeing represent data they cannot suppress, cover up, hand-wave away, hide, and/or ignore.

      geronl in reply to JHogan. | June 25, 2021 at 2:15 pm

      They’ve been doing that for decades. They took energy and food off the official inflation rate in 1980 I think

    At the current rate of printing it would take 157 years to print the six trillion dollar stimulus from last year.

    The Fed doesn’t actually have a printing press that cranks out dollars. Only the U.S. Department of Treasury can do that. So when we say the Fed “prints money” it’s just a figure of speech referring to certain amount of credit that is extended. There is nothing to back it up. Illegals, people on welfare and low income get a free lunch. Swamp people and people like Biden’s son have a banquet. But the cost is ultimately passed on to the taxpayer who must pay or the country goes broke.

      UserP in reply to UserP. | June 25, 2021 at 1:42 pm

      The rich get richer, the poor get poorer and the marxists continue to suck on the government tit.

    JusticeDelivered in reply to Dolce Far Niente. | June 25, 2021 at 4:15 pm

    I have not believed their inflation numbers for decades. For example. a power strip I have been buying for years has gone from $1.50 to $4.00 just before the CCP Viral attack, and now they are $5. I don’t buy power strips with surge protection, because all they are is a component which has a limited live called a MOV. Instead I use a surge protector based on inductors and capacitors, which has a very long service life.

    Then there are huge price increases on many other things I need, from 20% to 400% or more.

2smartforlibs | June 25, 2021 at 12:08 pm

More money chasing fewer goods. What needs to be explained?

Demand flat. Money supply up. Prices up.

I know what this means when classic economics principles are applied.

I wonder what Comrade Biden’s Marxist economists (practically an oxymoron) think this means. Which is not necessarily what they’ll say out loud in public.

    Demand flat. Money supply up. Prices up.

    I also find it odd that supposedly there are historic numbers of jobs available but are not being filled. The stock explanation is that collecting “free” money from the government is more lucrative than actually working – and that could be true in some cases – but even at the height of the handouts it was better for me economically to work than to sit back and collect. I also have a hard time believing people in and out of the government – who fraudulently told me that the 2020 election was the cleanest evah – are now suddenly and miraculously telling the whole truth and nothing but the truth about the economy.

    The media spin about the current economy has an Obamian “Recovery Summer” feel to it – a recovery that never actually showed up even after eight years of lying to the contrary.

For anyone not aware, one of the ways inflation numbers are represented as lower than they really are is by using only non-sale prices.

Using ground beef as an example…

Let’s say the local grocery stores sold ground beef at a non sale price of $5/lb but normally sell it for $3/lb on sale. And you saw that sale price every 3 weeks.

Now their non-sale prices is $5.10 lb. But the on-sale price is $4/lb and you see it on sale only every 4 weeks.

What’s the real inflation rate for ground beef the ordinary consumer is seeing? What’s the real inflation rate people on fixed incomes are seeing?

This is one of the many ways “our” government lies to us.

    CommoChief in reply to JHogan. | June 25, 2021 at 2:03 pm

    Absolutely correct. Another is the changes to CPI calculation methodology over the decades. Though these changes are not as crazy as some claim nor do they deliberately suppress price increases.

    CPI is intended to measure prices for the average urban consumer. It isn’t a direct correlation to any particular individual’s actual price experience.

    It’s a macro view for urban consumers. For that purpose it does a fair enough job. For the rest of us….meh CPI is a data point.

healthguyfsu | June 25, 2021 at 1:52 pm

On the removal of food and energy, I will never understand why more entities don’t push back on this “removal for stability” farce!

It’s actually quite simple to account for items with more fluctuation by doing a time-weighted average. Removing them is a political excuse for the government to no longer need to hold itself accountable for policy ramifications on two huge and vital consumer staples!

    CommoChief in reply to healthguyfsu. | June 25, 2021 at 2:16 pm

    Food and energy prices are measured. They are not included in the core CPI due to the potential for volatile swings in price that would overwhelm and distort the rest.

    For example Energy data is broken down by fuel, total household energy, electricity and Nat gas among other categories.

    The BLS web site has all sorts of databases to use for comparison between Cities, regions and timeframes.

    Just search BLS and CPI data and you should easily find the site. Look for the data tab and it allows you to search all sorts of things.

      healthguyfsu in reply to CommoChief. | June 25, 2021 at 9:22 pm

      I completely understand that…it’s not an excuse. Volatility can be controlled using a moving average over time. There is no valid reason to remove it entirely, especially when it is not a discretionary expenditure for average Americans.

        CommoChief in reply to healthguyfsu. | June 26, 2021 at 10:29 am

        Ok I think I understand you to be addressing the exclusion of energy as problem because it changes the perception people have of the headline number.

        IMO, most people don’t care about the headline number for CPI. They look at the things they purchase and can easily see a price increase or decrease.

        I am not disputing your overall point about CPI and how the changes are ‘sold’ by every administration or how the messaging can play a role in overall public perception. That is a valid argument.

    geronl in reply to healthguyfsu. | June 25, 2021 at 2:17 pm

    That was done in 1980 because Jimmy Carter wanted to take a weapon away from the Reagan campaign probably

The idea of this inflation being temporary is crazy. Are they planning to decrease the stupidly expanded money supply?

    Evil Otto in reply to geronl. | June 26, 2021 at 7:19 am

    If they did that would spike interest rates. They know inflation isn’t temporary in anything resembling a short term, and the cynical part of me thinks they’re doing it on purpose. We’re just seeing the start of it.

Crazy Jill Biden is the.de facto.president.- or thinks she is. She pushed poor Joe into this horror for her own vanity.

Some ar saying Crazy Jill pushed for dumbass Harris because Harris really is a dumbass. Crazy Jill may be a horror for policy, but she can lead poor.Joe around. That much is.proven.

On the evidence, the issue is not progressive costs in a functional market, but progressive, sustainable prices a la Obamacares.

Temporary only in a statistical model where consumers behave in a predictable way. Trouble is, people see enough increase in prices of what ever they buy and then they behave as if this really is inflation so we will spend less to keep more of our earnings. Perception can be just as deadly and patience will go out the window. Perception will become self fulfilling.

Mary, your last sentence, where you state that, “We cannot tell for sure if inflation is temporary or not from a few reports,” requires an historical response.

EVERY comparison of current economic conditions to the past includes the phrase, “IN TODAY’S DOLLARS!” Please pardon the caps. The use of that specific phrase acknowledges the permanence of inflation. When was the last time anyone used or heard the phrase, “deflation, compared to today’s dollars?” Inflation is why we had an inflationary “crisis” when the oil embargo took us from $0.37/gallon of gas to $0.67/gallon of gas in the early ’70’s? It is higher now and is cumulative through the supply chain.

In the early ’60’s, you could buy a 3-bedroom, 2-bath home for $15k. Ten years later it was $40k. Five years after that, it was $100k. I’ll let someone else fill in the blanks for what it is now. My wife and I bought 20 acres in the country, put a $40k manufactured home on it for a total of $80k. Yesterday, I was offered $426,400 for it. (too low, didn’t take it)

Inflationary bubbles burst, which is what we call a market crash, but the government spending/taxation upward spiral never ends, as we are seeing right this year, thus fueling PERMANENT inflation. I will stop there, as I’m not interested in repeating a dissertation on the entirety of the immutable laws of economics.

Is that 3.4% annualized, or are we talking 35+% annual inflation? It’s hard to compare numbers otherwise.

I don’t recall the worst of the Carter years being higher than about 15% per year inflation (plus 22% mortgage interest rates). Even 8-10% interest would squash this housing market dead.

It’s much worse than 3.4%. The CPI leaves out a lot of stuff that’s important to everyday life like food and fuel.

“If no honest attempt is made to pay off the accumulated debt, and resort is had to outright inflation instead, then the results follow that we have already described. For the country as a whole cannot get anything without paying for it. Inflation itself is a form of taxation. It is perhaps the worst possible form, which usually bears hardest on those least able to pay. On the assumption that inflation affected everyone and everything evenly (which, we have seen, is never true), it would be tantamount to a flat sales tax of the same percentage on all commodities, with the rate as high on bread and milk as on diamonds and furs. Or it might be thought of as equivalent to a flat tax of the same percentage, without exemptions, on every- one’s income. It is a tax not only on every individual’s expenditures, but on his savings account and life insurance. It is, in fact, a flat capital levy, without exemptions, in which the poor man pays as high a percentage as the rich man.” -Henry Hazlitt, “Economics in One Lesson”

They’re aware of what they’re doing, and I believe that this is intentional. The elites in Washington know that this spending is unsustainable, and hope only to ride the tiger for a little while longer, to push the inevitable collapse back a few more years so that they can escape it. It’s not the billionaires that they rail against in their class warfare who will suffer, it’s the lower classes trying to afford food and consumer goods.

We’re in for rough times, and probably sooner than we think.

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