Expect high inflation for another 3 years


Back in June 2022, inflation peaked at a 42-year high of 8.9%. Over the following 12 months, however, inflation then gradually declined. By June 2023, inflation had fallen to 3%. Yes, this was still above the Federal Reserve’s target rate of 2%, but at least the final goal seemed within reach.

The decline in inflation from 8.9% to 3% didn’t mean consumer prices were falling. Overall, prices were still rising, just at a slower pace. With an inflation rate of 3%, this meant that consumer prices had risen by 3% over the past 12 months.

But then inflation quickly took a turn for the worse. In July, inflation jumped from 3% to 3.2%. In August, inflation rose even higher to 3.7%. So, why are we seeing this sudden escalation in the rate of inflation?

One could easily argue one of the main drivers for inflation falling from 8.9% in June 2022 to 3% in June 2023 was a decline in crude oil prices. During this time, the price of crude oil fell from over $120 per barrel to around $67 per barrel.

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Crude oil has a very expansive impact on the American economy. From a single barrel of crude oil we get gasoline, diesel fuel, jet fuel, kerosene, heating oil and a multitude of other products. Crude oil is used in the production of chemicals, plastics and synthetic rubber. As the price of crude oil rises and falls, so do the costs of manufacturing and production, shipping and transportation, warehousing and many other operating expenses. These costs are ultimately reflected in the prices consumers pay for goods and services.

But now, these once-lower crude oil prices are starting to surge again. Since May, the price for a barrel of crude oil has risen from $67 to over $90, a 34% increase. With rising crude oil prices comes rising consumer prices.

But rising crude oil prices aren’t the only challenge for American consumers. Even if you exclude rising crude oil prices, inflation is still quite rampant throughout the rest of the economy, especially on everyday basic necessities. Over the past 12 months, food prices have risen 4.3%, clothing is up 3.1% while the cost of shelter has risen 7.3%. Even pet food is up 8.7%.

For the past two and a half years, and counting, consumer households have been struggling with excessively high inflation (above 2%). The last time inflation was reported at or below 2% was back in February 2021 (1.7%). The big question on everyone’s mind is when will inflation return to 2%?

On Wednesday, the Federal Reserve provided some clarity on that very question. As part of its mandate, the Fed is tasked with keeping inflation under control. Fed Chair Jerome Powell stated the Fed remains committed to the task of getting inflation back down to 2%, but readily admits, the process has “a long way to go.” In fact, the Fed now expects inflation to remain excessively high (above 2%) until 2026. That’s another three years!

By 2026, that means American households will have faced excessively high inflation for nearly six consecutive years. This will place an even greater burden on consumers already struggling with consistently high prices. Savings accounts are dwindling. Household debt is at a record-high $17.06 trillion. Credit card debt is at a record-high $1.03 trillion.

Two and a half years of excessively high inflation has been a monumental task for American households. Asking consumers to weather the storm for three more years might well turn into an impossible task.







Mark M Grywacheski

Mark M. Grywacheski



Kevin Schmidt





qctimes.com

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