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Inflation is a stealth tax on working people, retirees and other Americans who can least afford it. It won’t impact the lifestyles of the rich and famous but will gut-punch working-class Americans and dramatically change their lives.
Politicians generally like inflation – it creates the illusion of economic growth and disguises the cost of deficit spending. But inflation imposes significant direct costs on ordinary citizens.
Workers are forced to fight for higher wages just to keep their purchasing power from decreasing. Retirees and others on a fixed income find themselves suddenly unable to afford basic necessities. People who have scrimped and saved to build up a nest egg find the value of their savings wiped out. Interest rates on mortgages and other loans skyrocket.
Most Americans alive today have never experienced anything like the current rate of inflation, which hit a 40-year high of 7% in December, then jumped to 7.5% in January, exceeding most expectations. Gone are the days when price increases only affected specific products, such as lumber and vehicles. Today, it’s impossible for consumers to avoid feeling the bite of inflation, which is insinuating itself throughout the economy and affecting core staples that Americans can’t live without – including food.
A simple trip to the grocery store is now a traumatic experience for many people. Even the savviest shoppers can’t escape the reality of major price increases on everything from eggs and dairy to meats and coffee.
Kraft Heinz, one of the country’s biggest suppliers of packaged foods, recently warned that it will be raising the prices of many of its top-selling items by as much as 30% in response to supply shortages, increased ingredient costs, and rising transportation and labor costs. Mondelez International and General Mills have made similar announcements.
Overall, food prices rose an estimated 6.3% in 2021, according to the Consumer Price Index. Meanwhile, fuel prices rose by nearly 50%, and prices for all other goods increased by about 5.5%.
The situation is dire, especially for low-income Americans
These huge price hikes aren’t because corporations are greedy and have raised prices to pad their profits, as we are sure to hear the not-so-savvy leftists assert. They are because everything from producing a product to packaging it to transporting it simply costs more.
The situation is dire, especially for low-income Americans. Food insecurity affected approximately 42 million Americans in January – double the number who experienced food insecurity last April – because food prices are rising faster than wages. Compounding the pain, rents increased by an average of 17.8% in 2021, stretching household budgets even further for millions of American families.
To make matters worse, the latest data have put the final nail in the coffin of the theory that the sharp and sustained price increases of 2021 were just a “transitory” phenomenon. Even with the Federal Reserve pledging to raise interest rates in a belated effort to stanch inflation, industry experts don’t expect to see food prices stabilize until at least the second half of 2022.
And that’s assuming politicians in Washington don’t do anything to aggravate the situation.
Unfortunately, the current administration’s policies have put the country on a trajectory that appears increasingly likely to result in a tragic repetition of the “stagflation” we experienced in the late 1970s, when double-digit inflation wiped out the value of savings and kept working people from getting ahead because no matter how hard they worked, prices kept outpacing income gains.
As long as the federal government keeps running up multitrillion-dollar deficits and printing money to cover the tab, struggling American families have little chance of keeping their heads above water. Prices will continue to rise, and heightened inflation expectations will become a self-fulfilling prophecy.
Congress didn’t pass a law imposing this stealth tax on American consumers, but the inflation we’re experiencing today is in part the inevitable result of shortsighted federal policies over the past several decades. Keeping interest rates at or below zero while posting dizzying deficits year after year was bound to catch up with us sooner or later. Now that it has, the only solution is for Congress and the Federal Reserve to engage in some long-overdue belt-tightening.
Until that happens, Americans will have to keep paying the inflation tax every time they fill up their cars, restock their pantries, and pay their monthly heating bills.