Though promising to solve the affordability problem, since Trump returned to office, prices have only risen. By end of the year inflation is predicted to be 5 percent. Trump seems oblivious to how that affects most of us. In fact, he says he likes inflation!
When talking about economic problems, Trump blames Joe Biden. Truth is in the data, mostly from government sources, about inflation. Since 1985 inflation has gyrated around about 2.5 percent, except for the Great Recession when it briefly fell nearly to zero. After rising to about three percent it stayed there until covid hit in 2019. Supply chain disruptions and a massive, emergency infusion of cash to soften the blow caused inflation to spike to 8 percent in 2022, well below the post-war high of 13 percent.
During the 2024 campaign Trump complained loudly about “Biden’s lousy economy” claiming inflation and unemployment were excessive. But by the end of Biden’s term inflation had fallen to 2.9 percent and the unemployment rate was 4.1 percent. If Biden’s economy was lousy, how about Trump’s economy now with 4.3 percent inflation and 4.2 percent unemployment?
Keep this in mind about inflation. When inflation is positive, prices are rising. The inflation rate measures how fast that’s happening. If the inflation rate is negative, prices and wages are falling. That’s a recession. Be careful when you wish for lower prices.
The Fed and Congress together, not the President, have only two levers to try to keep inflation and unemployment low, the Fed’s monetary policy and Congress’ fiscal policy. Monetary policy primarily involves manipulating interest rates. Congress wields fiscal policy through its spending and taxing powers. In recent decades, however, Congress has abdicated the job of managing the economy because it likes to spend but doesn’t like to tax leaving the whole job to the Fed.
Of course, there are two sides to the affordability issue, the prices of things and incomes. Rising prices are not necessarily a problem if incomes are rising at the same or, preferably, faster pace. Throughout much of modern U.S. history, wages tended to rise more-or-less in lock step with prices. Lately they haven’t been, hence the affordability problem.
Recent data shows wages have been growing at 3.6 percent and inflation is 4.3 percent. Therefore, most families’ real incomes are falling. Real income is the measure that matters because it determines one’s standard of living. It limits what one can buy with a given dollar income. Even if inflation doesn’t accelerate, by year end real incomes will have fallen by nearly 9 percent. What is unaffordable now will be even less affordable by Christmas. It’s looking like we’ll find lumps of coal in our stockings!
Patrick Taylor lives in Ridgeland.
