Inflation is back, with higher prices for food and fuel hammering American consumers, and this time it really hurts.
It’s not just that prices are rising — it’s that wages aren’t.
Previous bouts of inflation have usually meant a wage-price spiral, as pay and prices chase each other ever upward. But now paychecks are falling further and further behind. In the past three months, consumer prices have been rising at a 5.7 percent annual rate while average weekly wages have barely budged, increasing at an annual rate of only 1.3 percent.
And the particular prices that are rising are for products that people encounter most frequently in their daily lives and have the least flexibility to avoid. For the most part, it’s not computers and cars that are getting more expensive, it’s gasoline, which is up 19 percent in the past year, ground beef, up 10 percent, and butter, up 23 percent.
What a surprise! Who could have predicted this?
Well, Sarah Palin for one, who predicted it last fall and got a round of laughter from the media for her insight. Palin warned that the weakening of the dollar through the Fed’s second round of quantitative easing would create an inflationary pressure that would hit families hardest.
In this case, the culprit is mainly fuel prices. Last month, prices shot up faster than any time in the past 36 years, thanks to a spooked spot market and widespread unrest across the oil-producing nations. Palin and plenty of others have also warned about this in relation to America’s energy policy and the obstruction of domestic production. Energy costs are multipliers in the distribution chain, as prices rise at every stop because of the added costs of transport.
A 40%+ increase in fuel costs in a few weeks’ time has created inflation while labor markets remain soft. It’s the same exact problem we faced in the 1970s, when (not coincidentally) we refused to drill our own oil to meet our own energy demands, while at the same time wasted years on neo-Keynesian policies that exacerbated rather than eased our economic woes.
If we want to keep inflation under control, we have to produce more of our own energy and buffer ourselves from the political tribulations in unstable oil-exporting nations. That will also add hundreds of thousands of good-paying jobs to our own economy while allowing businesses the kind of stability they need to invest in America. Instead, we’re now singing “Welcome Back” to the 1970s.
http://hotair.com/archives/2011/04/05/shocker-inflation-is-back-wages-falling-behind/
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